Demonetisation to impact near-term outlook for retail NBFCs
Ratings firm Icra has revised the growth outlook target for retail-focussed NBFCs to 17 to 19% for FY’17 from its previous estimate of 19 to 22% as as retail credit off-take has been impacted post demonetization.
“The key target segment of NBFCs – the self-employed – is likely to have been impacted more, as a sizeable share of their business is based on cash transactions, which were affected by the shortage in currency following demonetisation.” said Rohit Inamdar, Senior Vice President and Group Head Financial Sector Ratings, Icra Ltd. “The NBFCs are also expected to focus more on collections than on incremental business.”
Competitive pressures for retail-focussed NBFCs is set to intensify as banks are increasingly focussing on retail segment to offset the weak corporate credit growth. “Further, increase in the bank deposit base post demonetisation and steep reduction in lending rates is expected to result in migration of some large-ticket and relatively better quality NBFC borrowers to banks” added Inamdar.
Overall delinquencies are expected to increase in the near term as demonetisation impacted collections across asset classes. The extent of impact would vary depending on the asset class.
With old currency notes unacceptable as legal tender and shortage of valid currency among borrowers besides disruption in borrowers’ regular business, especially the cash-intensive ones, there has been a dip in recoveries across lenders.
The performance of the affected asset classes going ahead will depend primarily on the pace of restoration of currency supply in the system and the degree of impact of demonetisation on the borrower business volumes and cash-flows, Icra said.
As on September 30, 2016, the total managed retail credit (including off balance sheet book) of NBFCs stood at Rs 5.4 trillion and grew y-o-y ( year-on-year) by about 20% in the first half of FY’17 (as against 19.9% in FY’16 and 14.8% in FY’15). The total NBFC retail credit including SME credit stood at about Rs.6.0 trillion as on September 30, 2016 and grew y-o-y by about 22% in H1FY2017.
Some moderation in business growth, higher competitive pressures, fall in operating efficiencies because of increased focus on collections and, higher credit cost would partly offset the benefit of lower cost of funding. NBFC net profitability (Return on average managed asset) is expected to be in the range of about 1.6-1.8% for FY2017, according to Icra.
“The key target segment of NBFCs – the self-employed – is likely to have been impacted more, as a sizeable share of their business is based on cash transactions, which were affected by the shortage in currency following demonetisation.” said Rohit Inamdar, Senior Vice President and Group Head Financial Sector Ratings, Icra Ltd. “The NBFCs are also expected to focus more on collections than on incremental business.”
Competitive pressures for retail-focussed NBFCs is set to intensify as banks are increasingly focussing on retail segment to offset the weak corporate credit growth. “Further, increase in the bank deposit base post demonetisation and steep reduction in lending rates is expected to result in migration of some large-ticket and relatively better quality NBFC borrowers to banks” added Inamdar.
Overall delinquencies are expected to increase in the near term as demonetisation impacted collections across asset classes. The extent of impact would vary depending on the asset class.
With old currency notes unacceptable as legal tender and shortage of valid currency among borrowers besides disruption in borrowers’ regular business, especially the cash-intensive ones, there has been a dip in recoveries across lenders.
The performance of the affected asset classes going ahead will depend primarily on the pace of restoration of currency supply in the system and the degree of impact of demonetisation on the borrower business volumes and cash-flows, Icra said.
As on September 30, 2016, the total managed retail credit (including off balance sheet book) of NBFCs stood at Rs 5.4 trillion and grew y-o-y ( year-on-year) by about 20% in the first half of FY’17 (as against 19.9% in FY’16 and 14.8% in FY’15). The total NBFC retail credit including SME credit stood at about Rs.6.0 trillion as on September 30, 2016 and grew y-o-y by about 22% in H1FY2017.
Some moderation in business growth, higher competitive pressures, fall in operating efficiencies because of increased focus on collections and, higher credit cost would partly offset the benefit of lower cost of funding. NBFC net profitability (Return on average managed asset) is expected to be in the range of about 1.6-1.8% for FY2017, according to Icra.