NBFCs witnessing recovery in growth and collection efficiency

The working group on gold loans headed by K.U.B. Rao suggested that the cap on the loan-to-value ratio of gold loan NBFCs be raised gradually from the current 60% cap. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)
The working group on gold loans headed by K.U.B. Rao suggested that the cap on the loan-to-value ratio of gold loan NBFCs be raised gradually from the current 60% cap. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)
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 2 min read . Updated: 06 Apr 2021, 01:07 PM IST Shayan Ghosh

Economic recovery, coupled with a stable liquidity scenario, is leading to a strong rebound in growth and collection efficiency for non-bank financiers.

Across product segments, disbursements for the March quarter of FY21 are likely to be at pre-covid levels, analysts at Motilal Oswal said in a note on Tuesday.

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“Across product segments, there continues to be a month-on-month improvement in collection efficiency. Companies are also witnessing movement to the lower days past due (DPD) segment from the higher DPD segment, leading to a lower provisioning requirement," the note said, adding that there is a likelihood of higher write-offs to clean the books.

Stable liquidity scenario, coupled with a lag in the impact of a fall in the marginal cost of funds, led to an improvement in spreads, it said.

“Over the past few months, steady improvement across all important parameters has been encouraging. We continue to favour players with strong balance sheets and those least impacted by the ensuing covid-19 lockdown," it said.

The growth momentum for housing finance companies is also picking up. The report said that home sales across geographies witnessed a sharp recovery in the past few months as discounts by builders, record low interest rates, and stamp duty cuts in certain states were the key drivers.

“Most players have nearly stopped fresh corporate sanctions and are undertaking ‘retailization of balance sheet’ as the primary business strategy now. The affordable housing segment is seeing strong traction and the retail lending segment remains resilient on the collection efficiency side," it said, and added that the non-retail segment remains a key monitorable.

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Analysts at Kotak Institutional Equities said the fourth quarter was a strong quarter for non-banking financial companies (NBFCs), with disbursements picking up sequentially across the board, driven by moratorium exit, pent-up and seasonally strong demand.

“While disbursements were strong, loan growth may be muted. Weak new business momentum in the first half of FY21 will likely drag loan growth for the next few quarters and bottom out sometime in FY22," the Kotak Institutional Equities report said on Tuesday.

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