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The Government recently presented the Union Budget for FY2019-20. In the Revised Budget Estimates or the RBE, the GoI has pegged its fiscal deficit at Rs. 7.0 lakh crore, largely in line with the level indicated in the Interim Budget Estimates (IBE) for 2019-20, presented in January 2019. It has offset lower tax revenues and mildly higher expenditure by an increase in the forecast for non-tax revenues and disinvestment proceeds. An increase in the level of GDP, estimated for FY2020 (Rs. 211.0 trillion in RBE vs. Rs. 210.1 trillion in IBE), has resulted in the fiscal deficit now being projected at 3.3% of the GDP for the current fiscal, compared to 3.4% of the GDP in the Interim Budget.
For more on the budget analysis please Click Here

The tight liquidity conditions, which have prevailed in the market since September 2018 for the non-banking finance companies (NBFCs) and the housing finance companies (HFCs), have impacted the growth plans of most HFCs, leading to a decline in their portfolios as well as fresh disbursements. While the overall portfolio growth for HFCs stood at 10% in FY2019, some have witnessed a decline in their portfolios as well, owing to a decline in disbursements as well as high reliance on securitisation to generate liquidity. Given the tough operating environment, housing credit growth in FY2020 is also likely to moderate (lower than the last three years’ CAGR). Gross NPAs increased to 1.5% as on March 2019 from 1.1.% as on March 31, 2018 and the pressure on asset quality due to the tough operating environment is likely to continue. Clearly, the key risk factor, which could play out in the coming quarters, is the stress faced by developers with under-construction projects.

The Indian residential real estate segment continues to go through a liquidity crunch on the back of slow sales and reduced availability of credit. At the same time, listed and the more established realty players have reported robust sales and increased project launches, which have strengthened the ongoing consolidation in the industry.


Homebuyers are increasingly leaning towards developers with an established track record, as a result, the area sold by 10 large developers in ICRA’s sample set showed a growth of 44% over the previous year. The launch of new projects from these developers have also shown a strong growth. Overall though, the headwinds, in the form of weak demand, and transition to the revised GST structure continues.

We also take a look at the importance of creating adequate reserves for funding major maintenance (MM) in BOT road projects, given the single asset nature of such projects and the need for high maintenance expenditure. However, ICRA’s study of a sample of 32 projects reveals that as many as 60% of the projects did not create the required major maintenance reserve (MMR) owing to inadequate funds. In another 25% of the projects, the MMR created was not adequate – a result of the confluence of various adverse factors such as large increases in the cost of project implementation, aggressive bidding and lower-than-envisaged toll collections. Under the given circumstances, ICRA believes that the creation of an MMR deserves immediate attention from lenders. In the absence / inadequacy of such a reserve, the road SPVs will have to either depend on the sponsors for fund infusion or will have to utilise its tail period to raise additional debt by further leveraging the project, thereby affecting their credit profile.

The issue concludes with the regular features: monthly rating updates, upcoming ICRA events, and news features related to the company.

I hope you will find this newsletter useful and interesting.

Best Regards

Anjan Ghosh
Chief Rating Officer, ICRA Ltd

Supreeta Nijjar

Vice President and Sector Head - Financial Sector Ratings


Shubham Jain

Senior Vice-President & Group Head - Corporate Sector Ratings


Rajeshwar Burla

Assistant Vice President, Associate Head - Corporate Ratings

Tight liquidity to impact HFCs´ credit growth; asset quality a key monitorable going forward: ICRA   Consolidation of the realty market continues, with sales momentum for listed players remaining strong   Creation of adequately-funded major maintenance reserves for BOT road projects, deserve immediate attention from sponsors and lenders

Tight liquidity conditions, which have prevailed in the market since September 2018, impacted the growth plans of most housing finance companies (HFCs) with the on-book portfolio growth in FY2019 being low at 10%. Some of the HFCs witnessed a decline in their portfolios as well, owing to a significant decline in fresh disbursements and the high volume of securitisation required for the repayment of debt obligations. Given the tough operating environment, ICRA expects housing credit growth in FY2020 to be in the range of 13-15% (lower than the last three years´ CAGR of 17%).

Banks are expected to grow at a faster pace than the HFCs. As some of these companies aim to go slow on construction finance to conserve liquidity. Given the lumpy nature of these loans, the growth in non-housing loans is expected to be even lower than the home loans. However, with the low mortgage penetration levels in the country, the long-term growth outlook for the sector remains good and ICRA expects housing credit growth to recover as the operating environment improves.


Home-buyers are increasingly leaning towards developers with an established track record of on-time and quality project completion. Pricing also remains a key driver of purchase decisions. Thus, focused execution, resulting in timely deliveries and developer emphasis on increasing affordability of residential projects, has supported sales levels for the larger listed players. Consequently, they have reported healthy sales during FY2019, despite GST related disruptions and the NBFC financing slowdown.

Going forward, large organized players with established brands and proven execution ability are expected to continue to benefit from the ongoing consolidation in the residential real estate segment. However, headwinds remain in the form of transition to the revised GST structure without availability of input tax credit4 and overall weakness in demand. Proposals undertaken during the upcoming union budget would remain a key look-out area.


The single asset nature of the BOT road projects, coupled with relatively high major maintenance (MM) expenditure, demands that adequate reserves be carved out from the project revenues regularly to ensure that adequate reserves are built up in time to carry out the MM. However, confluence of various adverse factors such as large increases in cost of project implementation, aggressive bidding and lower-than-envisaged toll collections have been a reality for many BOT road projects. Due to these reasons, in most cases the SPVs are left with very little surplus due to which, more complication in BOT road projects over the coming years could arise – as a result of non-creation of a major maintenance reserve (MMR) or the inadequacy of the MMR.

On the funding status of the MM, in a staggering 60% of the samples considered for ICRA´s study[1], MMR was not created owing to inadequate funds. Whereas in the other 25%, though the MMR was created, it was not adequate to fund the associated costs. Any delay in carrying out the MM as per stipulated standards will not only jeopardise the user´s experience, thus impacting its cash flows, but it could also result in an exponential increase in MM cost per km. Further, the NHAI also would impose penalties in case of delayed MM activity.

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