NBFC sector to see 50-100 basis points increase in 90+ dpd in FY22: Icra

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The asset quality of non-bank financial corporations will experience high levels of stress in the near term due to the second wave of the pandemic, but the stress will subside thereafter as the efficiency of collection improves and that restructuring will accelerate, according to the rating agency Icra.

The spike in the quality of shadow bank assets is the result of a combination of factors. Unlike last year, there was no moratorium, which prevented the movement of the quality cycle of non-performing assets. Second, the efficiency of collection was severely affected due to the restrictions placed on disseminating control of the virus.

According to Icra’s assessment, the 90-day past due (dpd) portion of the NBFC segment will increase by 50 to 100 basis points (bps), net of recoveries and write-offs, in the current fiscal year . In FY21, 90 dpd increased 30 to 40 basis points from March 2020 levels as collections steadily improved and reached pre-covid levels in Q4 of the year. FY21. In addition, the write-offs of loans in the third and fourth quarters of FY21 and the extensive restructuring of their borrowers, containing arrears.

After the fourth quarter, collection efficiencies of non-bank lenders fell again in April-May. While large housing finance companies saw a lower impact on their collection efficiency, NBFCs lending to segments such as vehicle finance, business lending and microfinance saw their collections decline by around 20%. at 25% in May 2021 compared to T4FY21.

However, since then the collection has improved. “Maintaining the same over the following months and no further hindrance to recovery trends would be crucial from an asset quality perspective,” said AM Karthik, Vice President, Financial Sector Ratings, Icra.

The NBFC restructuring portfolio is also expected to increase and could reach 4.1-4.3% by March 2022 compared to 2.2% in March 2021. Similarly, for HFCs, the restructuring portfolio is expected to reach 2 to 2 , 2%. by March 2022 against 1% in March 2021. The restructured global sector portfolio should therefore double to 3.1-3.3% by March 2022 against 1.6% in March 2021.

In addition, segment assets under management (AUM) are expected to increase by 7-9% in FY22, supported by retail credit growth of NBFC and HFCs, which is expected to be around 8-10%. %, while the NBFC’s wholesale credit growth would remain subdued.

The rating agency, however, maintained its negative outlook on the sector, the capital situation of lenders, augmented by slower credit growth and increased liquidity. According to ICRA, the sector would need two trillion rupees in additional financing, in addition to refinancing existing maturities, in FY22 to meet its growth needs.

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