Housing portfolio is likely to remain largely resilient, says ICRA survey
A recent ICRA survey of over 65 non-banks finance companies, constituting ~60% of the industry AUM, concluded that their growth expectations have moderated vis-à-vis the expectations six months earlier.
This follows the possible impact of Covid 2.0 on business in Q1FY2022, said ICRA which had surveyed NBFCs to understand the impact of the second wave of COVID-19 on these entities and their expectations going forward.
Nevertheless, with gradual easing of lockdowns and moderation in fresh cases of Covid and with increased vaccination coverage, the lenders are optimistic on growth pick-up in balance part of FY2022 and expect it to be higher than the growth seen in FY2021.
ICRA Vice President, Financial Sector Ratings Manushree Saggar noted, “While 42% of the issuers (by number) are expecting a more than 15% growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8%; indicating that larger players in the segment expect a relatively moderate growth in FY2022.
“With most of the lenders (74%; in AUM terms) indicating an up to 10% AUM growth, we expect the growth for the overall industry to be about 7-9% for FY2022. Within the non-bank finance sector, segments like MFIs, SME focused NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages; supported by good demand and lower base.”
Notwithstanding the optimism on AUM growth, the NBFCs are expecting the asset quality related pain to persist in the current fiscal as well. Overall, 87% of issuers (by AUM) expect reported gross stage 3/NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated.
This is also reflected in over 90% of lenders (by AUM) expecting the credit costs to remain stable or increase further over FY2021 levels. On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, according to the survey.
Almost 73% of lenders (in AUM terms) have indicated an incremental restructuring of up to 2% of AUM and another 21% are expecting a restructuring between 2-4% of the AUM, under Restructuring 2.0.
Within the non-bank finance sector, relatively higher impacted segments such as MFIs, SME lending and vehicles are expected to undergo larger share of restructuring compared with the industry average. The housing portfolio is likely to remain largely resilient, in line with the trend seen in FY2021, the survey concluded.
“With no blanket moratorium and reflecting the stress on the cash flows of the underlying borrowers, mid-sized lenders (lender with AUM between Rs.5,000-Rs.20,000 crores) are expecting a higher share of restructuring under Restructuring 2.0. Overall, the restructured book of non-bank finance entities is expected to double to 3.1-3.3% in March 2022 from 1.6% in March 2021,” Saggar said.
A significantly higher number of issuers (56%) are expecting to raise capital in FY2022 as compared to the earlier survey, wherein only 28% of the issuers were expecting capital raise in FY2022.
While, by AUM weight, overall, one-third of entities are expecting to raise capital in this fiscal, the proportion is much higher for MFIs (64%), reflecting their need to raise capital for both growth as well as strengthening the balance sheet to withstand higher credit losses.
Over the last one-year, NBFCs have been maintaining good on-balance sheet liquidity to manage the market volatility amidst a tough operating environment. With an optimistic Q4FY2021, there was an expectation that some of this liquidity would get utilized to fund growth. However, given the persisting uncertainty, lenders are expecting the balance sheet liquidity to be improved or even increased further, in some cases.
Overall, despite elevated credit costs and negative carry on account of balance sheet liquidity, non-bank finance companies are expecting improvement in profitability indicators with a higher return on assets (RoA) supported by business growth, expectation on improvement in net interest margins against a stable credit costs as compared with FY2021.
“In ICRA’s view, pre-tax profitability for non-bank finance companies in FY2022 would remain similar to the last fiscal which was ~30% lower than the pre-Covid levels,” Saggar said. #investment #banking #economy /fiinews.com
