REPORT ON TREND AND PROGRESS OF HOUSING IN INDIA - JUNE, 2001-02

ASSET QUALITY IN HOUSING FINANCE
Housing finance is characterized by the low level of NPAs and this fact has been the major inducement for various players in the financial sector to look towards housing finance as a viable alternative. This is the only sector in the financial system where the level of NPAs remains to be very low. This fact has led the banks to take housing finance business more seriously resulting in housing finance disbursement by banks to even surpass the total disbursements by housing finance companies during the year 2001-02. The fact that housing finance is a compartively safe business can be observed from the fact that during the last three years, the proportion of NPAs to total assets of the HFCs registered with NHB and having asset base of more than Rs. 10 crores, (these HFCs account for more than 99% of the total business of all HFCs) has been declining. The proportion of gross NPAs to total assets of these companies decreased from a level of 2.88% as at the end of March,2000 to 2.53% as at the end of March,2001 and further to 2.36% as at the end of March,2002.

As at the end of March, 2002, there were 30 HFCs(excluding HUDCO) having asset base more than Rs. 10 crores and registered with NHB. For the purpose of analysis, these companies have been grouped according to their asset size as given below:

Asset Base of Approved HFCs

Asset Size No. of Companies
Between Rs 10 crore and Rs.150 crore (Group A) 12
Between Rs.150 crore and Rs. 500 crore (Group B) 10
Above Rs.500 crore (Group C) 8
(Asset size as on March 31, 2002)

However, the data pertaining to two of these companies is available only for the year ended 31st March, 2002. Accordingly, the analysis given in this chapter is based on the data in respect of 28 companies only [Group A – 12, group B – 9 and Group C – 7].

Total assets of these companies increased from Rs. 28917.20 crore as at the end of March, 2000 to Rs. 34663.41 crore by 31st March, 2001. During the same period gross non-performing assets increased from the level of Rs.731.81 crore to Rs.817.11 crore. However, in the percentage terms, the proportion of gross NPAs to total assets has declined from 2.53% as at the end of March, 2001 to 2.36% as on 31st March, 2002.

However, the net NPAs which were Rs. 636.36 crore as on 31st March, 2001, marginally declined to Rs. 623.72 crore by the end of March, 2002 and the proportion of net NPAs to total assets declined from 2.20 % on 31st March, 2001 to 1.80% as on 31st March, 2002.

In the case of HFCs with asset size of more than Rs. 10 crore and up to Rs.150 crore the gross NPAs are increasing over the years. Gross NPAs in this category of HFCs increased from Rs. 38.34 crore as at the end of March, 2000 to Rs. 54.54 crore as on 31st March, 2001 and further to Rs.63.27 crore by the end of March, 2002. Similarly, the proportion of gross NPAs to total assets for this category witnessed an increase from the level of 7.68% as on 31st March, 2000 to 8.80% by the end of March, 2001 and further to 11.09% by the end of March, 2002. A similar trend was observed in the case of net NPAs. The proportion of net NPAs to total assets of these companies increased from 5.74% as on 31st March, 2000 to 6.74% by the end of March, 2001 and further increased to 7.88% by end of March, 2001. This clearly shows the decline in appraisal standards in case of these small HFCs.

In respect of HFCs having asset size above Rs.150 crore and up to Rs.500 crore the gross NPAs have marginally increased from the level of Rs.213.28 crore as on 31st March, 2001 to Rs.221.68 crore by the end of March, 2002. However in the percentage terms the proportion of gross NPAs to total assets of these companies is on the decline and this percentage share declined from 12.46% as at the end of March, 2000 to 10.31% by the end of March, 2001 and further to 8.35% by the end of March, 2002. The variation in the proportion of net NPAs to the total assets has been similar to the variation observed in the case of proportion of gross NPAs to total assets. It decreased from 10.77% to 10.09% during 2000-2001 and further to 7.68% during 2001-2002. This decrease may be due to the improvement in the appraisal norms and follow up by the HFCs in this category

For companies having an asset size above Rs.500 crore also a trend similar to the companies with asset size above Rs.150 crore but less than Rs.500 crore is observed in respect of NPAs as a percentage of total assets. This proportion decreased from 2.03% at the end of March, 2000 to 1.77% as at the end of March, 2001 and further declined to 1.69% by the end of March,2002. Similarly, the proportion of net NPAs to total assets for these companies decreased from 1.70% to 1.47% during 2000-2001 and further to 1.19% during 2001-2002. This indicates the high importance being given by HFCs in this category towards loan appraisal, monitoring and follow up.

NPAs for Various Groups of HFCs Classified according to Asset Size (Rs in Crore)
Total Assets Gross NPAs Gross NPAs as % of Total assets Net NPAs Net NPAs as % of Total assets
Group A
2000 499.23 38.34 7.68 28.67 5.74
2001 620.01 54.54 8.80 41.80 6.74
2002 570.27 63.27 11.09 44.92 7.88
Group B
2000 1647.91 205.26 12.46 177.54 10.77
2001 2068.19 213.28 10.31 208.59 10.09
2002 2656.03 221.68 8.35 203.85 7.68
Group C
2000 21554.55 438.30 2.03 365.81 1.70
2001 26228.99 463.99 1.77 385.97 1.47
2002 31437.11 532.16 1.69 374.95 1.19
Total
2000 23701.69 681.90 2.88 572.02 2.41
2001 28917.19 731.81 2.53 636.36 2.20
2002 34663.41 817.11 2.36 623.72 1.80
Note: It may not be possible to draw a direct comparison with the figures published in the last report due to regrouping of HFCs on the basis of their asset size as on 31.3.2002

In terms of the classification of NPAs as per the prudential norms, the sub-standard assets accounted for about 67% of the total NPAs during the year 2000 and by the year 2001 this share declined to 53.44%. However during 2001-02 the percentage of standard assets to total NPAs again increased to 59.27%. During the year 2001-02, the share of doubtful assets in the total NPAs has declined from 46.49% to about 40%. This decrease in the share of doubtful assets is approximately equal to the increase in the proportion of sub-standard assets in the total NPAs. From this it may be inferred that the accounts, which have become doubtful during the last couple of years have shown some improvement during the year.

Break-up of Non-Performing Assets (per cent)
Category/Year 2000 2001 2002
Sub-standard 67.09 53.44 59.27
Doubtful 32.52 46.49 39.93
Loss 0.39 0.08 0.80