Personal, gold & micro loans to boost NBFCs’ asset books

NBFCs are still facing difficulty in lending to vehicle loans and businesses, but their overall loan book growth this year is expected to be supported by personal loans, micro-credit and gold loans along with a steady pick-up in home loans, according to ratings firm Icra.

While individual loans are expected to do well, business loans still face asset quality concerns. “Within the NBFC-Retail segment, personal credit, microfinance and gold loans are likely to be the primary growth drivers as other traditional asset segments-vehicle finance and business credit are still facing headwinds because of supply constraints and asset quality concerns" said Manushree Saggar, vice president, financial sector ratings, Icra. " For housing finance companies or HFCs, the growth is expected to be driven by the housing book while lenders have adopted a cautious approach towards non-housing segment.”

Assets of retail NBFCs are expected to grow by about 5-7% in FY2022 and by 8-10% in FY2023, while housing finance companies' assets are estimated to expand by 8-10% and 9-11% respectively. At the same time, NBFC-wholesale assets under management would continue to shrink in the current fiscal and stabilise in FY'2023, Icra said.

While the disbursement and assets under management trends have revived in Q2 FY'2022 and Q3FY'2022, the trend is likely to continue in Q4 of FY'2022 as impact of the third wave of the pandemic was limited. However, the setback witnessed in the first quarter on account of the Covid-related disruptions is weighing in on the overall growth in the current fiscal. Disbursements should be healthy for sustained growth in assets under management Icra said.

As for asset quality of NBFCs and HFCs , about 55% of the sample NBFCs of and studied by Icra and 75% of the HFCs ( in terms of assets under management) have aligned with their " gross stage 3" reporting with the tightened NPA norms provided by the RBI via its clarification on November 12, 2021. While the RBI provided some relaxation in the applicability of the same (from October 2022), entities which have already aligned are less likely to revert to the older norms, Icra said.

Write-offs, especially for NBFCs, remain elevated. The performance of the restructured book would remain a monitorable in the near term as sizeable restructuring was undertaken in H1 FY2022 and typically had a moratorium of 3-6 months, according to Icra.