The consolidated balance sheets of non-banking financial companies (NBFCs) grew at a slower rate in Q2 and Q3 of FY21, as compared to the corresponding quarters in FY20, the Reserve Bank of India (RBI) said in its bulletin for May 2021, released on Monday. The central bank attributed the deceleration in growth to the outbreak of the pandemic and its resultant effects.

Non-bank lenders’ balance sheets grew 13% year-on-year (y-o-y) in Q2 and 11.6% in Q3, the bulletin said, without sharing comparable growth rates for the previous year. It added that the double-digit growth in adverse conditions points to the resilience of NBFCs, which were able to cushion the impact of the pandemic through quick adoption of technology, policy support and reasonably strong fundamentals.

The industrial sector remained the largest recipient of credit from systemically important non deposit-taking NBFCs, even as its share moderated between Q3FY20 and Q3FY21. The retail sector, followed by services, were the other major recipients of credit and their share grew during the period.

“Industrial sector, particularly micro and small and large industries, seemed the worst hit by the pandemic as they posted a decline in credit growth. Imposition of lockdown, abrupt stoppage of economic activities and disruption in supply chains to contain the spread of the virus could have affected these sectors the most,” the bulletin said.

The central bank described agriculture as “the bright spot” as it saw the highest growth in disbursements in Q3FY21. However, this could be partly attributable to a favourable base effect.

The asset quality of NBFCs witnessed an improvement in FY21 so far, compared to Q4FY20, on account of regulatory forbearance. However, the gross non-performing asset (NPA) ratio of NBFCs was elevated in Q1 and Q2FY21 compared to the corresponding periods in FY20. In Q3FY21, both gross NPA and net NPA ratios fell compared to Q3FY20. “Nevertheless, the true extent of NPAs in the sector may be gauged in the upcoming quarters as the interim order by the Supreme Court on asset classification standstill was lifted in March 2021,” the bulletin said.

Among sectors, industry witnessed a sequential reduction in the gross NPA ratio to 6.2% in December 2020 from 6.7% in September 2020, while the gross NPA ratio of loans to services companies stood at a high 9.4% in Q3FY21, a tad lower than 9.7% in Q2.