The asset quality of non-banking financial companies is expected to improve further going ahead even as their restructured book witnessed sizeable slippages in April-September, say bankers.  

“Outlook on the asset quality is expected to be stable as rural demand is likely to pick up on better rabi crop harvest and moderation in inflation going ahead,” Mayur Modi, co-founder and co-chief executive officer, Moneyboxx Finance, said.

In addition to a rise in the cash flow of borrowers, NBFCs have also improved their underwriting standards. This has led to an improvement in their loan collections in recent months.

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“Moneyboxx’s portfolio remains strong and resilient owing to our strong underwriting standards, focus on essential sectors, and our livestock borrowers have multiple sources of income, including agricultural income,” Modi said.

To put things in perspective, nearly 24% of non-bank lenders’ restructured portfolio slipped into non-performing assets in April-September, data from ICRA showed. On the other hand, nearly 17% of NBFCs’ restructured loans were repaid.

Broadly, around 2% of NBFCs’ overall assets under management were restructured in April-September, according to ICRA.

So far, non-bank lenders were aided by the Reserve Bank of India (RBI) moratorium on the re-payment of loans in the wake of COVID-19, and this kept their slippages in check, say analysts. The improvement in the headline NPA numbers of NBFCs can also be attributed to loan write-offs by these lenders.

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However, slippages arose when restructured accounts moved out of the moratorium period.

Going ahead, the impact of higher interest rates on the asset quality of these lenders will be a key monitorable, especially in long-tail products like housing loans.

“A large part of the NBFC loan book is fixed interest rate, so their existing loans do not get impacted. Only when you take a new loan, higher cost comes into play,” Manushree Saggar, vice President and sector head, financial sector ratings, ICRA, said.

“In long-tail products where interest rates are variable, there will be some impact but we are not expecting it to be significant. Also, the restructured book is a very small part of the overall pie. Even if some of that were to slip, the overall numbers will not change drastically,” she added.

Broadly, ICRA expects NBFCs’ gross NPA to fall to 4.2% as on March 31 from 4.4% a year ago.

“We did see some slippages in unsecured restructured portfolio in hospitality sector. But, we have seen demand picking up in other sectors like healthcare, light engineering, chemicals, electrical equipment, food processing and micro enterprises,” Anuj Pandey, chief risk officer, U GRO Capital, said. “We foresee a healthy growth and a sustainable MSME portfolio built-up in short to medium term.”