NBFC fragile assets likely to rise to 5-6% by March 2022: Crisil

Non-banking finance companies (NBFCs) may see an uptick in fragile assets covering non-performing loans, slippages due to revision of norms and from restructured book to 5-6 per cent of assets by March 2022, according to Crisil.

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings said NBFCs in India are facing headwinds including asset quality pressures. The fragile assets were about 4-4.5 per cent in March 2021.

The asset quality pressures vary across asset classes. While home and gold loans have been relatively less affected, unsecured credit and SME loans faced brunt.

While there may be apprehensions about rising reported GNPAs, additional disclosures by NBFCs around underlying delinquency profiles and collection efficiencies can help allay them, Krishnan said.

The rating agency said after weathering multiple challenges over the past three fiscal years, assets under management (AUM) of finance companies are set to grow 8-10 per cent to about Rs 30 trillion in next fiscal (FY23). The two tailwinds — improving economic activity, and strengthened balance sheet buffers – will drive credit expansion. The AUM is FY22 is estimated to grow at 6-8 per cent this fiscal and two per cent in the last fiscal (FY21).

NBFC are facing three headwinds: first is intensifying competition from banks that, flush with liquidity, have sharpened focus on retail loans. Second, gross non-performing assets (GNPAs) are expected to increase, mostly because of the revision in recognition norms and, to some extent, due to slippages from the restructured book. And third, funding access is yet to fully normalise for some of the players, it added.

Organic consolidation is also underway with larger NBFCs gaining share. In three fiscal years through 2021, the market share of the top five NBFCs has risen by six per cent to 46 per cent.

The ability to identify niches that cater to the relatively difficult-to-address customer segments and asset classes will fuel long-term growth for the sector. Retail loans are expected to see reasonably broad-based growth in the current and next fiscals supported by pick-up in demand and consequently underlying sales.

Gold, home and unsecured loans should clock the fastest growth rates. On the other hand, wholesale credit would continue to de-grow as platforms such as alternate investment funds gain currency, it added.