Growth in non-banking monetary companies’ (NBFC) assets below management (AUM) is probably to recover to about 7-9% in FY22 from a flattish efficiency in FY21, rating agency Icra mentioned on Wednesday. In order to attain this price of development, they will have to raise Rs 1.9-2.2 lakh crore, in addition to refinancing current lines. The rating agency carried out a survey across non-banks, involving about 60 entities, collectively accounting for more than 50% of the sectoral AUM and about 23 investors. The survey revealed that more housing finance corporations (HFCs) count on development of more than 10% as compared to NBFCs. Also, smaller sized and mid-sized entities with an AUM of below Rs 20,000 crore count on larger development price compared to their bigger peers. However, investors have a comparatively muted development outlook.
A M Karthik, vice president and sector head – monetary sector ratings, Icra, mentioned that development in FY22 is probably to be driven by the improvement in demand from all the important target segments. Some of the important segments which would bolster development contain gold loans, house loans, private credit, rural finance and microfinance. Growth in the car finance and organization loans segments, which are closely linked to financial activity, are anticipated to take longer to register a affordable revival.
Non-bank exposures to industrial genuine estate and other substantial corporate or wholesale exposures are anticipated to register a decline even in FY22 following the decline of about 15% in FY20 and a 10% anticipated contraction in FY21. “As per the survey, majority (~70%) of issuers and investors do not expect co-lending to account for less than 10% of non-bank AUM over the next two-three years. Access to adequate funding, therefore, would remain critical for the sector to register a sustained improvement in growth,” Karthik mentioned.
Growth would be contingent upon the access to sufficient funding lines. Incremental bank loans to non-banks, contemplating their higher sectoral exposure to the NBFC segment, remains to be observed and would, in turn, rely on general bank credit development. Mutual funds registered some improvement in their exposures to non-banks more than the current previous, but their sustainability will be essential. An anticipated improvement in securitisation volumes in FY22 following the sharp contraction in FY21 and access to funding from other sources, which includes retail or overseas lenders or investors, would be important for sustainable development.
Icra expects the slippages from the restructured book (estimated at 4-6% of AUM) to hold NBFC non-performing assets (NPAs) at elevated levels even in FY22 following an raise of up to 200 basis points (bps) in FY21. This is following contemplating that entities, specifically these getting retail exposures, would favor to create off sticky overdues, in view of the provision create-up, sufficient earning efficiency and their comfy capital structures. Collection efficiency, notwithstanding the improvement considering that April 2020, remains about 5-15% decrease than pre-Covid levels, thereby exerting stress on their present asset high quality.
“While part of the stress could get restructured, slippages would increase in H2FY21. As per the survey, ~90% of the investors expect the NPAs to increase by about 100-200 bps by March 2021 vis-a-vis 40% of the issuers. Further, another 40% of the issuers expect the NPAs to remain stable vis-a-vis March 2020 levels,” Icra mentioned.