Continuing crisis to cut non-bank lenders' profits by up to 0.5%: Icra

The report said NBFC segment is well capitalised for addressing the medium-term growth opportunities

Illustration: Ajay Mohanty

The ongoing issues with the non-bank lenders will crimp the operating profits of such companies by up to 0.50 per cent, a report said on Thursday. 

The decline in profitability will be primarily due to increase in the cost of funds, slowdown in portfolio growth and cost of carrying additional liquidity due to the troubles, ratings agency Icra said. 

All these factors will have an impact of 0.30-0.50 per cent on the operating profit, the agency said, elaborating on the impact of each of the setbacks.

The cost of funds will increase by up to 0.50 per cent for such lenders, while the slowdown in growth will have an impact of up to 0.10 per cent on the operating profit.

As the going gets tough, all the NBFCs have started building extra liquidity buffers, which will narrow the net interest margins by up to 0.15 per cent, thereby impacting the profitability, it said.

There can also be an impact on asset quality as the small businesses segment, one of the largest customer segment for the NBFCs, will find the going tough, it said, adding the loans against property, commercial vehicle and construction equipment will be the most affected.

It can be noted that the defaults by infra financier IL&FS in August last year percolated into concerns on wider NBFC universe. Companies were dependent on short-term money to fund long-term assets were the ones where the concerns were the highest and witnessed huge corrections in stock prices.

While refusing to help directly, the RBI attributed the stress to troubles on asset-liability mismatch. The mutual funds segment was one of the primary suppliers of liquidity and have become wary of exposures.

Icra said the NBFCs have diversified their borrowing to the banking system which has given Rs 70,000 crore by September alone to support repayment of the maturing borrowings in the October-December period.

It said the growth rate for retail-focused NBFCs will halve to around 12 per cent for the second half of the fiscal, from the 24-25 per cent in the first half, which will take down the overall credit growth to 16-18 per cent for FY19.

The report said NBFC segment is well capitalised for addressing the medium-term growth opportunities. 

The dedicated home finance companies (HFCs) are also likely to see a moderation in near-term credit growth, but the earnings will remain resilient unlike the NBFCs, it said.

Banks will be taking advantage of the moderation in credit growth and possibly increase their share of the housing finance market, it said.

On the asset quality front, HFCs will see pressures from the self-employed segment, it said, adding the salaried segment will not see pressures.