NBFCs' bad loans jump to 1.9% in FY14: Icra

Advances growth down 57%

Domestic rating agency Icra today said retail-focussed non-bank lenders have witnessed a surge in asset quality issues during the fiscal ended March and the troubles are likely to continue in FY15 as well.

The agency said delinquencies due for over 180 days, after which the asset turns bad as per the existing reporting guidelines, for the retail focussed NBFCs increased to 1.9% for FY14 from 1.3% at the end of FY13.

Going by the 90-day due rule, which qualifies an asset as bad for commercial banks, delinquencies increased to 4.5% as of March 2014 as against 3.6% in the year-ago period, it said.

"While in FY15 delinquency level for retail NBFCs could remain at elevated levels a possible pick-up in industrial activity could result in some easing, although the same is expected only towards the latter part of the year," it said.

This is noted that the retail segment was a refuge for the lenders in the face of the economic downturn over the past few years, which resulted in demand from the big ticket corporate loans dry up.

A slew of lenders, especially commercial banks, have increased their focus on the segment after the economic gloom set in and have been devoting special attention to it.

According to Icra, the credit growth registered by retail focussed NBFCs also declined massively during the fiscal with such NBFCs reporting only 8% growth in advances as against 19% rise in advances in the previous fiscal, down 57%.

A significant part of the slowdown was due to de-growth in the commercial vehicle, construction equipments and gold loan segments, it said.

The agency expects the retail-focussed NBFCs to report some pick-up in the credit growth for FY15, and estimated the number to come at the 11-14% level for the fiscal.

Apart from that, Icra said the RBI announcement to allow NBFCs to operate as business correspondents will help such companies with an alternative avenue of earning fee incomes as they will start asset origination.