The non-banking finance (NBFC) and housing finance sectors (HFC) experienced one of the toughest quarters as liquidity crisis hit its peak.

The impact was especially seen on HFCs that have been extensively raising funds from the bond markets because of favourable interest rates, among other factors. These companies felt redemption pressures due to the IL&FS mess leading to decline in loan disbursals in turn affecting their loan-book growths. HFCs naturally were hit hard as their incomes dropped and cost of money raised spiked. The difference between incremental cost of funds and average cost of funds was as much as 40 to 50 basis points for good HFCs.

The third quarter ended December 31, 2018 results show that Canfin Homes has passed the litmus test as it became the only HFC (barring Indiabulls Housing) to show a sequential improvement in its net interest margin.

Loan disbursals for Canfin Homes declined 9 percent on a quarter-on-quarter basis – lowest in the industry (see chart).

Not only this, Asset Under Management (AUM) growth of Canfin Homes was the best in the sector, at 16.7 percent on an year-on-year basis and 3.8 percent on a quarter-on-quarter basis (See chart).

The lower decline in disbursals and highest AUM growth amongst its peers meant that Canfin Homes was the only one to show an improvement in its net interest margins (NIM). Although, Indiabulls Housing showed improvement in NIM but that was due to one off securitisation income).

NIM for Canfin stood at 3.18 percent as against 3.17 percent in the previous quarter. NIMs for Gruh Finance declined 3.96 percent, while for Dewan Housing and LIC Housing Finance, the decline was at 2.91 percent and 2.33 percent, respectively.

That said, all was not well for Canfin Homes as well. Investors raised eyebrows over its asset quality even though it remains as best among peers (See chart).

Return ratios of the company is also one of the best amongst NBFCs and HFCs with it being one of the very few companies to have an return on equity (ROE) of over 21 percent.

The strong return ratios of Gruh Finance is reflected in its valuations of P/BV of 10.2x 9MFY19. Canfin Homes trades at P/BV 2.2x 9MFY19 with strong return ratios.

First Published:Feb 12, 2019 10:42 AM IST