The retail business of domestic non-banking finance companies, or NBFCs, grew during the second quarter of the current financial year thanks to continuing demand for credit in the microfinance segment...
The retail business of domestic non-banking finance companies, or NBFCs, grew during the second quarter of the current financial year thanks to continuing demand for credit in the microfinance segment, stable delinquencies and a shift in funding profile in favour of cheaper instruments such as non-convertible debentures (NCDs) and commercial papers (CPs), a report released by rating agency ICRA on Wednesday said.
A migration to tighter NPA recognition norms, which will gradually bring NBFCs on par with banks by FY18, and hardening of incremental funding cost due to changes in Sebi regulations on exposure limits of mutual funds, however, will keep keep their profitability in check, the report said.
According to the report, while gold loan ranked second when it came to retail credit growth since FY2014, demand from the tractors and construction equipment segments continued to remain sluggish.
Such a trend was also seen in delinquencies (90+ days past due) as the report claims that while their rate in tractors and construction equipment segments almost doubled since FY14, the same for the largest segment – CVs – has remained flat. The rate for gold loan has eased the most.
Cumulatively, although rates rose 70 bps in the first half of FY16 as compared to FY14, ICRA is pinning hopes on improving economic conditions to not only put a ceiling but also result in a reversal in them.
At the same time, ICRA warns that commercial banks, which saw their retail books grow faster than that of NBFCs in CY2015, might turn up the heat going forward as less capital-intensive retail segment may become attractive to battered PSBs.