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Journalism of Courage
Lax norms adopted by the regulator, the National Housing Bank (NHB), on how housing finance companies (HFCs) must report their asset-liability management (ALM) could be masking the ALM mismatch in the segment, at a time when non-banking financial companies (NBFCs) are facing a liquidity crunch, according to a report by Credit Suisse.
Although HFCs have come out with decent ALM (asset minus liabilities) records, with shortfall reported at under 10 per cent of their loan books over the near term, the report cautioned that the relaxed guidelines could be “distorting the true picture”.
This is because the National Housing Bank, a wholly-owned arm of the Reserve Bank of India (RBI), allows housing finance companies to report ALM on behavioural basis (factoring in loan prepayments and liability roll-overs) instead of using run-down rates (repayment) as per loan contracts. HFCs typically base their ALM reporting on their own historical experience of run-down rates (over, say, the last five years), while other NBFCs report their ALM on a contractual basis.
“This, in an environment of abundant liquidity, could lead to an illusion of shorter-tenure asset book — requiring a matched shorter-tenure liability book,” it said.
NHB data show the run-down rate for home loans at around 25 per cent — implying the duration of about four years, compared with contracted maturities of 10-20 years.
An email sent to the National Housing Bank on October 24 for a response remained unanswered till the paper went to press on Monday. FE
