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Mumbai: Non-banking financial companies (NBFCs) and housing finance companies (HFCs) registered an improvement in their asset quality in the March quarter as the impact of the Omicron variant of covid-19 was minimal and the slippage from the restructured book was lower, rating agency Icra said on Monday.
Icra said that lenders augmented their collections in view of the tighter Income Recognition, Asset Classification and Provision (IRAC) norms that came into effect in October. That apart, NBFC write-offs remained elevated and marginally higher than the last fiscal, while HFC write-offs were modest.
According to the rating agency, the gross stage three or bad loans for NBFCs reduced substantially during the quarter, reaching almost the pre-covid level, while the improvement was relatively moderate for HFCs. Bad loans of NBFCs reduced to 4.4% in March 2022 from 5.7% in December 2021, while for mortgage lenders, bad loans moderated, in line with expectation, and stood at 3.3% as against 3.6% in December 2021.
“Slippage from the restructured book, especially for NBFCs, was lower than expected, which also favourably contributed to the asset quality performance. The standard restructured book of NBFCs is estimated to have reduced to 2.7-3% in March 2022 from the peak of 4.5% in September 2021, while the same for HFCs moderated to 1.4-1.6% from 2.2% during the above-mentioned period," said A M Karthik, vice-president (financial sector ratings), Icra.
He added that although bad loans have moderated, lenders continue to carry higher provisions, which would provide them some room to deal with pressure on margins as borrowing rates are going up.