The assets under management of non-banking finance companiesare likely to start growing next fiscal again, said Crisil on Friday.
“Navigating a raft of headwinds for over two fiscals – culminating in de-growth in the current fiscal – assets under management (AUM) of non-banking financial companies (NBFCs) is set to grow again, although at a relatively subdued 5 per cent to 6 per cent next fiscal,” said rating agency Crisil, adding that the turnaround will be led by larger entities with stronger parentage.
However, due to difficulties in accessing funding at optimal rates, NBFCs will end up ceding their market share to banks in the near term, especially in two key segments of home loans and new vehicle finance, it further said.
Face challenges
NBFCs registered a robust 18 per cent growth in their AUMs between 2013-14 and 2017-18. However, they have been facing challenges since September 2018 as a fallout of the IL&FS crisis, which continued this year with the Covid-19 pandemic and slowdown.
“Despite an estimated GDP growth of 10 per cent next fiscal, overall NBFC sector growth is likely to be slower because access to funding remains a challenge due to concerns about the impact of the pandemic on asset quality. Additionally, competition is expected to be more intense from banks, which are flush with low-cost deposits and better placed with improved capital buffer than in the previous years,” said Gurpreet Chhatwal, President, Crisil Ratings.
In terms of collections, the trend in monthly collection efficiency ratio of NBFCs till November shows a marked improvement, especially in vehicle finance segment.
“However, three months after moratorium, there is still some way to go before collections reach pre-pandemic levels,” said Crisil.
Pegging the stressed assets (gross non-performing assets and potential stress in loan book) of the NBFC sector at ₹1.6-lakh crore to ₹1.8-lakh crore or about 6.5 per cent to 7.5 per cent of AUM as on September 2020, the agency said it is likely to increase further given the macro economic challenges in the country. Gold loans and home loans will see the least impact, it said.