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, according to rating agency Crisil. Stressed assets are essentially the combined pool of bad loans and restructured credit.
In absolute terms, the tally works out Rs 1.5-1.8 trillion. The maximum pain in expected to be in real estate segment.
However, some regulatory steps to manage impact of pandemic like the one-time Covid-19 restructuring window, and MSME restructuring scheme will limit the reported gross non-performing assets (GNPA) though, the rating agency said.
Unlike previous crises, the current challenges on account of the pandemic have impacted almost all NBFC asset segments, Crisil added.
The operations were curbed the most in the April-June quarter, when disbursements and collections were severely affected by the hard-braking of economic activity.
The collection efficiency has improved since then, but it’s still some way off 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 via better risk management and collection processes.
Krishnan Sitaraman, Senior Director, Crisil Ratings, said This fiscal has bought unprecedented challenges to the fore for NBFCs. The collection efficiencies, after deteriorating sharply, have now improved, but are still not at 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 added.
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