The real estate asset under management (AUM) of non-banks, which registered degrowth of 10 per cent in 2021, is likely to further contract by 5-10 per cent in 2022 and stabilise in the next year, says a report.
The performance of non-banks (non-banking financial companies and housing finance companies) in recent years has been marred by several challenges as entities have grappled with fund-raising challenges and asset quality issues, domestic rating agency Icra Ratings said in a report on Monday.
The outlook for real estate-oriented non-banks remains negative due to the asset quality pressures over the near to medium term and the muted growth expectation, the agency said.
The real estate AUM of non-banks contracted by 17.64 per cent to Rs 2.8 lakh crore as of March 2021 from Rs 3.4 lakh crore as of March 2019.
“Icra expects the same to contract further by 5-10 per cent in the current fiscal. It is expected to stabilise in FY2023 (0-5 per cent degrowth),” the agency said.
Its Vice President and Sector Head (Financial Sector Ratings) Samriddhi Chowdhary said non-banks witnessed a significant slowdown in growth since H2 FY2019, following the liquidity crisis, and consequently moderated their disbursements.
The impact was more pronounced on wholesale financiers with sizeable real estate exposures compared to their retail counterparts owing to a prolonged period of risk aversion by investors and other stakeholders, she said.
“Given the fund-raising challenges, real estate oriented non-banks not only limited incremental disbursements to this sector but also attempted to scale down their portfolios through asset sell-down to shore up liquidity,” Chowdhary said.
The agency said non-banks have also witnessed stress build-up in the real estate portfolio since FY2019, given the slowdown in the underlying segment.
Real estate gross non-performing assets (GNPAs) for non-banks increased to 5.1 per cent as of March 2020 from 2.1 per cent as of March 2019 and have remained on an uptick since then.
They increased further to 6.2 per cent as of March 2021 and 6.8 per cent as of September 2021.
The rating agency expects an increase of 180-250 basis points (bps) in GNPAs in the real estate segment in FY2022, Chowdhary said.
However, players with a diversified credit book across asset classes are likely to witness a relatively lower increase in NPAs, she said.
The agency said the real estate oriented non-banks have witnessed an improvement in their capitalisation profiles since March 2018 driven by the moderation in the AUM growth coupled with sizable capital raise in a bid to strengthen their balance sheets.
The capital cushion for real estate oriented non-banks is estimated to have increased by 4 per cent from March 2019 to March 2021.
The current capitalisation level also provides the ability to absorb losses.
The agency expects the earnings profile to contract marginally in the current fiscal and stabilise in FY2023 unless there are further pandemic-induced business restrictions. The ability of non-banks to keep the credit costs under control would remain critical, it said.