NBFCs retail credit growth seen at 16-18% in FY18: Icra

The retail credit growth for non-banking financial companies is likely to be moderate at 16-18 per cent in the current fiscal, helped by some asset classes, such as SME credit, says a report.

NBFC retail credit grew by nearly 16 per cent year-on-year to Rs 6.6 trillion as of September, against 15 per cent in FY17 and 19 per cent in FY16.

"The overall NBFC credit growth is expected to be relatively moderate at about 16-18 per cent for the current fiscal be driven by some key target asset classes, including SME credit, which is expected to witness some uptick in the second half of the fiscal, as the new taxation regime slowly stabilises," Icra said in a report today.

NBFCs share in the unsecured consumer credit is likely to expand as more entities venture into this segment for product diversification and higher business yields.

The share of these loans increased to 8 per cent of total NBFC retail credit in September 2017 vis-a-vis 4.5 per cent in March 2015.

The rating agency said the share of unsecured loans are expected to increase further going forward, with increase in fintech based lending, growth in SME and small business credit, and as entities diversify to asset classes including personal loans and consumer durable loans.

The sector is likely to witness an increase in the 90+ day delinquencies which would settle at about 5-5.5 per cent by March 2018, from 5 per cent as of September 2017.

Pressure is expected to largely emanate from the loan against property (LAP) and SME segment, which account for about 25 per cent of the retail NBFC credit, it said.

The rating agency also said that higher credit cost because of the increase in delinquencies and transition to the 90+ day NPA recognition norm and the moderation in operating efficiency as growth slowed, would continue to exert pressure on net profitability of NBFCs.

The report further said housing finance companies (HFCs) will require around Rs 9,000-16,000 crore of external capital to grow at a CAGR of 20-22 per cent for the next three years with internal capital generation levels of 15-16 per cent.

Most of the incremental capital requirement of HFCs would be from small HFCs, including those operating in the affordable housing space.

The moderation in cost of funds for HFCs continued in the second half of FY18 with an overall seven basis points decline in the cost of funds for all HFCs in the period vis-a-vis a 10 basis points decline in the first quarter.

"Going forward the ability of the HFCs to bring down their cost further will be dependent on the share of borrowings which are maturing and will be reprised at lower rates," the report said.

The report expects a 5-10 basis points reduction in profitability for HFCs in FY18 and report good return on equity of 17-19 per cent for the current fiscal.