News, Scrip Scan

Micro housing finance companies choke on acute fund crunch post DHFL crisis

Scrip Sanctuaries for protection from the wildlife in this jungle of Indian Equities

Micro housing finance companies choke on acute fund crunch post DHFL crisis

In the last few months, many micro housing companies had already shrunk their lending operations by 40-45% in the absence of funding

Micro housing finance companies are finding it increasingly difficult to raise funds with the crisis at Dewan Housing Finance Limited (DHFL) worsening.

During the past few years, the push for affordable housing has led to the mushrooming of several micro housing finance firms, which mostly provide loans to the informal sector. The average loan size varies between Rs 5-10 lakh.

After the crisis at Infrastructure Leasing & Financial Services (IL&FS) in September 2018, the cost of funds for micro housing companies had gone up by around 100-150 basis points. And now, after the DHFL crisis, banks and financial institutions have almost stopped lending, according to the companies.

“After the IL&FS crisis, it was tough to get funding, but now it has become impossible. The problem is acute for those who are not capitalised strongly and widely leveraged,” said Anil Mehta, MD and CEO, India Shelter Finance Corporation.

In the last few months, many micro housing companies have already shrunk their lending operations by 40-45 per cent in the absence of funding.

“The immediate impact of the present crisis is further increase in cost of funds. However, the bigger problem is that the banks are not coming forward for lending,” according to C V Rao, managing director (MD) and chief executive officer (CEO), Nivara Home Finance, a recent entrant in the micro home loan market.

According to data from the National Housing Bank (NHB), there are about 100 housing finance companies (HFCs) operating in India currently. Within the past two to three years, close to 15-20 companies have come up with a focus on lending to the informal sector, where borrowers typically don’t possess the requisite documents to avail of loans from banks or bigger financial institutions.

According to a senior official at a micro housing finance company, a number of new entrant, who are not well capitalized might have to shut shops in the next six months, if the liquidity situation doesn’t improve.

In the past one year, there has been a particularly steep growth in micro housing loans, giving loans to people engaged in informal sector, and who do not possess adequate documents to avail loan from banks. A typical borrower could be an artisan, driver, domestic help or daily wage-earner. What differentiates the loan from normal housing loan is the monthly repayment cycle, along with tight monitoring of the portfolio through personal contact — a model similar to microfinance. However, unlike the microfinance model, the loan in the micro housing sector is generally granted with collateral. The interest rates charged in the loans are about 5-6 per cent higher than the prevailing market rates.

https://www.business-standard.com/article/finance/micro-housing-finance-companies-choke-on-acute-fund-crunch-post-dhfl-crisis-119061000757_1.html

Excerpts from Gaurav’s Blog

  Rest in Peace now Gerela Saab  ! Mr S T Gerela ex GM of BSE passed away peacefully this morning We had not met in years but he always remained at the top of my mind when it came to testimonials for this is what he had said to me over a decade ago,when […] [...]

Vedanta de-listing offer price Rs 87.50~Come on Mr Anil Agarwal ! Promoter Group of  Vedanta Ltd has proposed a voluntary de-listing at an indicative offer price of Rs 87.50~are the over 7.3 lakh minority shareholders from Alibag !? …apologies to the people of Alibag Some would term this as De-listing Duplicity ~ but I would […] [...]

This is a Riskless Reliance Industries Rights Investment Strategy for those over 2.3 Million Shareholders already holding RIL shares. It is not a recommendation to buy RIL cum rights  It’s a no brainer yet I’m just penning a brief note because some have told me they hold Reliance but are skipping the Rights ! Don’t […] [...]

 Wealth is negotiable, Health is not Your Personal Well Being is more important that the Stock Market Well Being ~ Always & more so in this unfathomable ongoing Covid-19 Reality Above’s a three minute reach out by me last night to all connected with me to reinforce this .It’s also posted on Facebook , […] [...]

Yes Bank ~ Has the RBI & MOF lost it !? SEBI really is a bystander here Controversial Lock In Clause 3 Sub Clause 8 (a) in the Scheme of Reconstruction  No wonder the Finance Minister Mrs Nirmala Sitharaman, while highlighting only selected points, even when asked for details of the Scheme,did not want to […] [...]