The stressed assets of finance companies in India are expected to reach 6-7.5 per cent of their overall assets under management by March, reflecting the impact of Covid-19 pandemic, according to rating agency CRISIL.
In absolute terms, the tally works out Rs 1.5-1.8 trillion. The maximum pain is expected to be in real estate segment, followed by unsecured loans.
Stressed assets are the pool of pro-forma gross non-performing assets (GNPA), including accounts that have not been declared NPA in line with the Supreme Court order, and potential stress in loan book (including restructuring).
The Reserve Bank of India’s Financial Stability Report (FSR) in January estimated that gross bad loans of banks in India would rise to 13.5 per cent by September from 7.5 per cent in the year-ago month under the baseline scenario. The pain could be higher with GNPA of 14.8 per cent in September 2021 under severe stress scenario.
However, some regulatory steps to manage the pandemic impact, such as the one-time Covid-19 restructuring window and MSME rejig scheme, will limit the reported GNPA, the rating agency said.
Unlike previous crises, the current challenges on account of the pandemic have impacted almost all the NBFC asset segments, CRISIL said.
The operations were curbed the most in the April-June quarter, when disbursements and collections were severely affected. The collection efficiency has improved since then, but it’s still some way off the pre-pandemic levels in the MSME, unsecured, and wholesale segments, given the volatility in underlying borrower cash flows. But some NBFCs have curtailed the impact on asset quality by better risk management and collection processes.
Krishnan Sitaraman, senior director of CRISIL Ratings, said: “This fiscal year has bought unprecedented challenges to the fore for NBFCs. The collection efficiencies, after deteriorating sharply, have now improved, but are still not at the pre-pandemic levels. There is a marked increase in overdues across certain segments and players. Nevertheless, gold loans and home loans should stay resilient, with the least impact among segments.”
Alongside wholesale loans (dominated by real estate and structured credit), vehicle finance, MSME finance and unsecured loans have been in spotlight this year due to a rise in stressed assets.
“For vehicle finance, however, we expect the impact to be transitory, and collection efficiencies to continue improving over the next few quarters as economic activity improves.”
The light commercial vehicle segment has seen collection efficiency steadily rising, while the medium and heavy commercial vehicles segment is lagging. The stress in this portfolio is likely to be driven by segments such as tourist bus, school bus, and commercial car loans.
The big challenge this year will be the unsecured personal loans segment, where underlying stress has increased significantly with early-bucket delinquencies more than doubling for many NBFCs. This segment had last seen such pressure in 2008-10, after the global financial crisis. Unsecured loans to MSMEs is another area where underlying borrower cash flows have been affected, CRISIL said.