Non-bank financial firms show more resilience in 2021, experts say
Mumbai:
Despite the raging Coronavirus pandemic, non-banking financial companies (NBFCs) have shown a lot of resilience in 2021 and are expected to continue seeing momentum in the new year. 2022.
This year, growth will be driven by a stronger economy, stronger balance sheets, higher provisions, and improved capital positions of NBFCs.
On the other hand, the total non-performing assets (NPA) of NBFCs is likely to increase, following the Reserve Bank of India (RBI)’s move to tighten NPA targets in November 2021.
“Our basic assumption is that the worst is behind them (NBFCs) and things will start to improve from here. We expect the NBFCs to show higher growth and they will be rewarded. benefit from the growing economy,” said Crisil Ratings Limited senior director and vice president of ratings, Krishnan Sitaraman.
Mr. Sitaraman said the assets under management (AUM) of shadow bankers are expected to grow by 6-8% in the current financial year and 8-10% in the next.
Recently, the Bank of India Trends and Progress report 2020-21 released by the RBI said, “With increasing vaccination rates and an increasingly widespread recovery of the economy, the sector The NBFC sector is expected to continue to grow”. ICRA Limited vice president and sector head AM Karthik said the NBFC sector, which includes housing finance companies (HFCs) but does not include government-owned and facility-focused entities infrastructure, has experienced a roller coaster trend over the past 12-18 months.
“The recovery in the second half of 2021-22 due to pent-up demand and following the easing of the COVID-19 lockdown has supported growth and earnings performance,” he said.
Mr Karthik also said this fragile recovery was hampered by the second wave of the pandemic in the first quarter of 2021-22.
The impact was relatively limited compared with the previous fiscal, with the sector rebounding in Q2/2021-22 in terms of disbursements and AUM (assets under management) growth, he added.
“I think 2022 is going to be a very good year. year ago,” said Ashwini Kumar Hooda, mortgage financier and Deputy Managing Director Ashwini Kumar Hooda.
With interest rates falling, incomes rising and property prices stable, there will be demand for home loans and home purchases.
“So home loan growth will be at least 15-20% in 2022,” he said.
In the current cycle, all home sales are supported by end-user demand and there are no investors in the market, he added.
In order to strengthen supervision over NBFCs, the Reserve Bank of India (RBI) has introduced size-based regulation and revised NPA upgrade and accreditation targets in 2021.
The revised quotas include special mention account (SMA) and NPA classifications on an end-of-day basis, and upgrade from NPA to standard category only after all undue delinquencies have been cleared. payment.
CARE Ratings senior director Sanjay Agarwal said that with RBI’s new asset classification standards, the NPA of NBFCs is likely to be enhanced from FY21 levels.
In a report published in November 2021, CARE Ratings said there would be a 300 basis point (bps) increase in total NPA with limited impact on loans with shorter maturities due to revised NPA targets.
The average gain is expected to be around 150 basis points (bps) in total NPA, the ratio of assets moving from the SMA2 pool, the report said.
Sitaraman expects the reported NPA for NBFCs to grow between 25-300 basis points, depending on the segment they are operating in.
While for home loans and gold loans, the NPA will be at the lower end of the range; and for unsecured lending MSMEs or NBFCs, it will be at the higher end of the range, he said.
“However, this will not affect the underlying asset quality as it is more of an accounting measure,” Sitaraman said.
According to the Financial Stability Report (FSR) released by the RBI in December, the NBFC’s total NPA ratio, which fell in September 2020 reflecting the then-popular asset classification stalemate, has increased reaching 6.5% at the end of September. In 2021.
In December, the RBI launched a rapid corrective action (PCA) framework, which aims to strengthen market discipline among non-banking actors and align their regulations with those of other non-banking actors. bank regulation.
The norms provide risk threshold monitoring for NBFCs based on total capital, tier 1 capital, and net NPA. The framework will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.
The PCA framework, which prescribes a certain number of NPAs, means that NBFCs will focus more on collection and will not allow an account to fall into the NPA category, said Pankaj Naik, deputy director (organizations) finance) of India Ratings and Research, said.
In 2021, RBI replaced the boards of Reliance Capital Ltd, Srei Infrastructure Ltd and Srei Equipment Finance. The central bank has also initiated a corporate insolvency resolution process (CIRP) for three defaulted NBFCs.
Dewan Housing Finance Ltd (DHFL), which is facing bankruptcy proceedings, was acquired by Piramal Enterprises in 2021. The defaulter was the first NBFC submitted by the RBI to the National Corporate Law Court (NCLT) in 2019.
In terms of funding, NBFCs are improving in their access to capital.
“NBFCs’ funding conditions are stabilizing as banks are lending to them. Mutual funds, which have been very cautious when lending to the NBFCs, have also started lending. NBFCs are also diversifying. their funding base by looking at a retail loan,” Crisil’s Sitaraman said.
Financial system is evolving from a space dominated by banks to a mixed system where non-bank intermediaries are gaining prominence, Banking Trends and Advances in India 2020- 21 said.
