Overall, 25 per cent of its book was under moratorium till August 31. Individual loans, which account for 93 per cent of the total book, saw 16 per cent of the customers opt for the benefit. Interestingly, 37 per cent of loan against property came under moratorium, of which 21 per cent, falling in the salaried class, chose to defer outgo. Being the second largest housing financier catering largely to employed borrowers, LIC Housing’s moratorium book is a good indicator of the systemic stress.
Under such circumstances, creating a buffer and subsequently writing off bad loans would best ensure that stress isn’t accumulated and the balance sheet reveals the true picture. This, though, would require copious tier-1 equity capital. At 12 per cent, LIC Housing’s tier-1 capital is the weakest among non-banking lenders.
Analysts at ICICI Securities note that low capital adequacy and high leverage mean the balance sheet is vulnerable to stress and equity infusion is imminent. Those at Edelweiss, however, say the management has ruled out equity infusion in the near future. While LIC’s (the parent company) scale and size lends comfort, it is important to get in more equity capital for LIC Housing to remain ahead of the curve in tapping demand recovery and cleansing its financials.
Therefore, while valuations (0.7x FY21 estimated book) might be appealing, the unstable asset quality could be a dampener.