Softening of interest rates in the system has led to a 50 bps (y-o-y) drop in the cost of funding of non-banking financial companies (NBFCs) in the first nine months of FY16, Icra said on Thursday.
In a performance review report, the credit rating agency also noted that an improvement in demand for credit in microfinance, gold loan and commercial vehicle segments, led to credit growth of 18% in the quarter ending December 2015, compared to about 15% in March 2015, and will lead to an overall NBFC credit growth of 19-22% in FY17.
Icra, however, warned that lower rural demand, led by adverse rainfall patterns, will affect the demand for credit in the tractors segment and might also impact the NBFCs’ overall asset quality.
The credit rating agency also noted that while a pickup in construction and business activity will ensure an improvement in delinquencies in commercial vehicle and construction equipment segments, those when it comes to tractor and gold loans are expected to remain under pressure.
As a result of NBFCs migrating to stricter non performing asset (NPA) recognition norms, reported NPAs rose to 4.4% of advances in the quarter ending December’15 as compared to 3.5% in March 2015, the report noted, further adding that close to 75% of NBFC credit migrating to the 120+ days past due norms in FY17, will throw up additional challenges for the sector.
In the report, Icra also noted that retail focused NBFCs will maintain moderate RoEs of 10.5—11% in FY17, and would not require significant equity infusion.