NBFCs may see 7-9% growth in assets under management next fiscal: Icra

But access to funding would be crucial to have a sustained improvement, says a report

Non-banking finance companies (NBFCs) are likely to see a 7-9 per cent growth in their asset under management (AUM) in FY2022 but access to funding would be crucial for them to have a sustained improvement, says a report.

Icra Ratings in a report said NBFCs would require an additional funding lines of about Rs 1.9-2.2 lakh crore, apart from the refinance of the existing lines, to achieve a 7-9 per cent growth in AUM in FY2022.

The agency did a survey across non-banks, involving about 60 entities, which together account for over 50 per cent of the sectoral AUM and about 23 investors.

"Non-banks (NBFC [excluding infra NBFCs] and housing finance companies (HFCs)) AUM growth would revive in FY2022 to about 7-9 per cent vis a vis a flattish performance in the current fiscal," the agency said in the report.

The segment's AUM had registered a growth at a CAGR of 16 per cent over the period March 2016-March 2020.

The agency's vice-president, sector head (financial sector ratings) A M Karthik said, "Growth in FY2022 is envisaged to be driven by the improvement in demand from all the key target segments vis a vis current fiscal, which was impacted by the COVID-19 lockdown.

Some of the key segments which would bolster growth include gold loans, home loans, personal credit, rural finance and microfinance. Growth in the vehicle finance (commercial vehicle, passenger vehicle), business loans including loan against property and other commercial lending segments, which are closely linked to the economic activities are expected to take longer to register a reasonable revival, he said.

NBFCs exposures to the commercial real estate and other large corporate/ wholesales exposures are expected to register a decline even in FY2022 after the decline of about 15 per cent in FY2020 and about 10 per cent expected contraction in FY2021.

As per the survey, majority (around 70 per cent) of issuers and investors do not expect co-lending to account for less than 10 per cent of non-bank AUM over the next 2-3 years, he said.

"Access to adequate funding, therefore, would remain critical for the sector to register a sustained improvement in growth," according to Karthik.

It expects the slippages from the restructured book (estimated at 4-6 per cent of the AUM) to keep non-bank NPAs/GS3 (gross stage 3) assets at elevated levels even in FY2022 after an increase of up to 200 bps in FY2021.

"As per the survey, around 90 per cent of the investors expect the NPAs to increase by about 100-200 bps by March 2021 vis a vis 40 per cent of the issuers, the agency said.

Further, another 40 per cent of the issuers expect the NPAs to remain stable vis a vis March 2020 levels, the report said.

It said as per the survey, about 60-65 per cent of the issuers and investors expect the provisions to go up further from current levels in FY2021. Majority of NBFCs vis a vis HFCs expect provisions to go up because of the nature of the asset financed.

The agency expects "profitability indicators to be impacted in the current fiscal as the provision and credit cost increased sharply in view of the expected portfolio stress; it would continue to remain at similar levels even in FY2022".