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Event update: Financials - NHB Refinance; Not a game changer

NHB has increased the refinance limit it provides to housing finance companies for the current fiscal from Rs240bn to Rs300bn. The additional Rs60bn of refinance is a small amount (equal 2.5% of incremental home loan growth in FY18). However it is still valuable in an environment where NBFCs particularly HFCs are facing a liquidity crunch as lenders/investors are nervous to lend to them after the IL&FS defaults.

We believe the hike in refinance limit is not a game changer because:

• The amount is small. The total retail home loans of HFCs as of end FY18 stand at Rs9.7 trillion. The incremental growth in FY18 was Rs. 1 trillion. Rs 60bn accounts for 5.6% of that incremental growth.
• We do not yet know how NHB will allocate these funds.

How the refinance works: Banks are expected to submit their requests for the amount of refinance they are seeking to NHB before June every year. Going by these claims, NHB allocates the refinance kitty HFCs. NHB’s fiscal year is from July to June.

What/who is eligible for refinance: The criteria for what is eligible for refinance are well defined and as follows:

• There are currently two schemes - the general scheme and the affordable housing scheme
• General scheme: Under the general scheme, all pure housing loans are eligible but only the ones upto Rs1.5m will get a concessional interest rate.
• Refinance for affordable housing: The affordable refinance is a bit tough - where there is a cap on rate, square feet and amount. To be eligible the HFC cannot lend at a rate more than 8.48%.
• At least 50% of total loans of an HFC have to be individual housing loans to qualify for refinance: Only those HFCs are eligible for refinance where pure housing loans are upto 50% of total loans. Earlier the cap was higher at 75% but given the rapid growth in non-housing loans for HFCs, NHB lowered it to 50%.
• Only pure housing loans qualify for refinance. The National Housing Bank (NHB) offers refinance assistance to Housing Finance Companies (HFCs) in respect of their loans given to individuals for housing. These loans would include loans given for construction, purchase, upgrades or repairs of dwelling units. Loans against property (i.e. loans given against the security of house property but for purposes other than construction / purchase / repairs / up gradation / extension) are not eligible for refinance.
• NHB assigns a rating to each HFC: NHB has an internal rating criterion for HFCs and a rating is assigned to each HFC.
• While most refinance is retrospective, there is a provision for prospective loans: Since this is a refinance scheme, first HFCs make the loans and then go to NHB for refinance. So there is a lead lag. But NHB also has a scheme for prospective loans which comes with very strict conditions.

Which HFCs qualify: Given that to be eligible 50% of total loans should be individual loans, most of the known HFCs would be eligible for refinance including, HDFC, LICHF, PNBHF, GRUH, India Bulls Housing, Dewan Housing and even the smaller ones like Aawas Housing, Aspire and REPCO.