It has been observed that there has been an increase in the portion of loans given out by housing finance companies to non individuals. This trend prevailing from the past few years may result in higher non performing assets, according to rating agency, CARE.

Non individual advances refer to loans like loans against property, builder loans and lease rental discounting etc. Their number has gone up quite high in the books of HFCs since the past three years which has raised a question regarding the asset quality, said CARE Managing Director and CEO D R Dogra.

"This is an alarming trend as such loans tend to turn bad compared to those given to individuals. Individuals, who borrow to buy their own houses are less likely to default compared to non-individuals," Dogra quoted.

The increase in proportion of non-individual loans took place from 23-24 per cent at the end of FY '07 to around 29 per cent at the end of FY '09.

"There is a clear trend emerging that the pie of non-individual housing loans is steadily becoming larger in the total loan portfolio of HFCs," Dogra said.

CARE also said that the HFCs have so far not been impacted by NPAs owing to their adequate capitalization which has also led to aggresive expansion of their loan portfolio.

The gross NPA levels of HFCs stood close to one per cent and net NPA level was around 0.5 per cent in the nine months ended December 2009, Dogra said.

"Financial year 2009-10 was a double whammy for HFCs with competitive pressures mounting towards reduction in lending rates and at the same time banks with lower borrowing cost enjoying the edge to their benefit," Dogra said.

Also, the interest margin of HFCs is likely to improve with the rise in lending rates in the period ahead, he said.