NBFC growth to hit decadal low of 6-8% in FY20: Crisil

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Published: December 12, 2019 2:24:24 AM

There are landmines on the asset quality front as well. Delinquencies are expected to inch up marginally for retail asset classes, such as home loans and vehicle finance, which together account for more than half of the overall sectoral AUM. “The economic slowdown has contributed to a cyclical uptick in delinquencies across retail segments,” Crisil said.

NBFC, nbfc growth , Crisil, industry newsIncremental cost of borrowings has also increased despite the interest-rate cycle turning south.

Growth in assets under management (AUM) of non-banking finance companies (NBFCs) is likely to fall to a decadal low of 6-8% year-on-year (y-o-y) in FY20 as a result of high funding costs, a recalibration of loan books and a slowing economy, rating agency Crisil said on Wednesday. The rate of growth in FY19 was 15% y-o-y.

The crisis of confidence in NBFCs, which was initially focused on mismatch in asset-liability (ALM) profiles, has now shifted to concerns over asset quality, especially with respect to their wholesale book, Crisil said in a report. With the headwinds unlikely to dissipate soon, non-banks – specifically the wholesale-focused ones without strong parentage – would need to make structural changes and reorient their business models, leading to a recalibration of their AUM mix.

Even as measures taken by the government and regulators have offered some relief, challenges persist on the liabilities side 15 months since liquidity problems first surfaced. Overall borrowings raised between July and September 2019 were the lowest in the last four quarters since September 2018, according to Crisil.

Incremental cost of borrowings has also increased despite the interest-rate cycle turning south. At the same time, there is a clear differentiation between non-banks backed by strong parentage and those without it. Gurpreet Chhatwal, president, Crisil Ratings, said: “Non-banks with strong parentage – that account for 70% of the sectoral AUM – have been less impacted on the funding front. They are likely to drive sectoral growth over the medium term.”

There are landmines on the asset quality front as well. Delinquencies are expected to inch up marginally for retail asset classes, such as home loans and vehicle finance, which together account for more than half of the overall sectoral AUM. “The economic slowdown has contributed to a cyclical uptick in delinquencies across retail segments,” Crisil said.

Moreover, in the real estate and structured credit space, delinquencies are likely to increase sharply. The sector’s ability to fulfill financial commitments has of late been impacted due to the overall slowdown in their business. This may be accentuated further as a chunk of loans to real estate sees moratoria lapse in the months ahead. Slippages are likely to shoot up as a result, Crisil said.

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