Non-banking finance companies, excluding NBFC-MFIs, are likely to see an increase in the 90 plus day delinquencies by about 20-50 basis points from the levels of about 4.9% as on June 30, 2017, ratings agency Icra said. While some key asset classes like loan against property would register an increase in delinquencies, others like tractors and construction equipment are likely to see some reduction from their peaks. Commercial vehicles, passenger vehicles, and gold are likely to register moderate increase or would remain range-bound, depending on the extent of improvement in demand and operating conditions. “The GST implementation is likely to have a transitional impact on small businesses and self-employed borrowers, the key target segments of NBFCs,” said Rohit Inamdar, senior vice president and group head, Financial Sector Ratings, Icra.
The demonitisation hangover coupled with a slowdown in business on account of GST during the first quarter of FY 2018 weighed on the growth prospects, he added. Credit growth is expected to remain moderate in the July-September quarter, but is expected to pick up in the second half of fiscal 2018 as the tax regime slowly stabilises, Icra said. It expects credit growth of about 16-18% for fiscal 2018 for retail NBFCs. As of June 30, the total managed retail credit of NBFCs stood at around R6.4 lakh crore, up 15% from the year-ago period, Icra said.
The micro-finance and the loan against property segment continued to record moderate growth compared to historical trends, while performance of most of other asset segments like commercial vehicles, private vehicles, two and three-wheelers and tractors remained largely range-bound. NBFC credit costs and operating costs are expected to remain higher than the past, which would offset the benefits of the lower cost of funds. Net profitability, therefore, is expected to remain at about 1.6-1.8% in FY2018.
“The 12-month average cost of funds stood at about 9.4% in June 2017 compared with 9.7% in March 2017 and about 10.3% in March 2016. However, higher credit cost because of the increase in delinquencies and transition to the 90+day NPA recognition norm and the moderation in operating efficiency as growth slowed, would continue to exert pressure on net profitability of the entities,” Inamdar said.