Moratorium is particularly high among NBFCs and HFCs and a large portion of the moratorium mix is skewed towards developers. What kind of impact could this have on asset quality?
If you look at the construction finance segment, it had already been under pressure. Incrementally segments which are coming under pressure is lease rental. If you speak to any of the companies, all of the companies are talking about cost cutting and the first line item they are talking about is rental. All of them are saying that they will renegotiate rentals and the rental bills may come down by 10-15-20%. Work from home may not have that much impact over the long term. We do not know but definitely the rental income on commercial real estate is likely to come down by 10-20%.
Second segment which is likely to see recent increase in delinquencies is construction housing loans. People have bought these houses and they have construction delays. Construction delays are likely to increase post-Covid. Some of the projects which were already under stress may not see the light of the day and I expect there to be a significant increase in delinquencies in that segment. Also, under construction housing loans, SARFAESI Act is not applicable and the recovery from those loans will be very negligible. Given these two trends, asset quality is likely to deteriorate for housing finance companies as a whole. We have already been seeing pressure both on retail asset quality as well as from the wholesale asset quality.
If you look at the likes of HDFC, this quarter itself in both segments, asset quality has deteriorated. Those trends will continue to inch up going forward and with other housing finance companies, the trend we are seeing is much more severe and they are likely to see a significant increase in asset quality over the next few quarters.
Coming to moratorium, during the first phase, lenders were also quite lenient in terms of giving moratorium. In the wholesale segment, we have seen almost 50-80% of the book under moratorium while on the retail segment, the percentage is between 20-50%. I think in the moratorium 2.0 where three months additional time has been given, lenders will incrementally be more vigilant and the moratorium percentage in my view will come down across both retail as well as wholesale segment. As economic activity is picking up, lenders also have much more time to decide which players they will like to give a moratorium to. Moratorium percentages are likely to come down but asset quality trends will deteriorate in the coming quarters.
From the financing point of view, what is the kind of credit demand that you are anticipating for the residential segment?
We are expecting a very muted disbursement growth from the financials. We are building almost 25-30% decline in disbursement in this financial year primarily due to lockdown. The first quarter is completely washed out already and we expect the demand to pick up slowly. We expect demand to get normalised only after the festive season. The first two quarters will be very muted in terms of disbursement growth and housing demand, which will lead to a sharp correction in loan growth and disbursement growth for most of the housing finance companies.