Assets under management of non-banking financial companies are likely to witness a decline in the current fiscal as fresh disbursements have witnessed a substantial drop, says a report.
According to a Crisil report, in FY20, the asset under management (AUM) of shadow banking sector is estimated to have grown by 4-6 per cent, a Crisil report said.
The rating agency said "assets under management of non-banking financial companies (NBFCs) are expected to de-grow 1-3 per cent in the current fiscal as fresh disbursements drop sharply".
Excluding the top five NBFCs, the de-growth is expected to be even sharper at 7-9 per cent, it added.
While disbursements across segments are expected to fall 50-60 per cent, lower repayments during the loan moratorium period (March 1, 2020, to August 31), and capitalisation of interest accumulated will, however, help limit the de-growth of NBFCs AUM, it said.
"Our analysis of the largest segments of the NBFC AUM pie shows that most segments could witness contraction in the current fiscal," the rating agency's senior director Krishnan Sitaraman said.
Real estate and structured credit focused NBFCs are likely to witness a de-growth of 10-12 per cent in their AUM in FY21. Home loan NBFCs may show a growth of 0-2 per cent.
Gold loan NBFCs AUM is likely to grow at 14-16 per cent in the current fiscal, the report said.
"The silver lining, however, would be gold loans, which constitute around 5 per cent of the AUM. Growth here is seen to be relatively higher as more individuals and micro enterprises go for it to meet immediate funding needs," Sitaraman said.
The agency said in the current environment, competition from banks, especially in the traditional asset classes such as home loans and vehicle finance, is expected to be substantially higher given that banks have surplus liquidity and their focus will be on these asset classes in the retail space.
But in real estate and structured finance, NBFCs have been catering to borrowers at the project stage, where banks do not have a major presence, it said.
As for micro, small and medium enterprises, especially loan against property, and the unsecured segments, even banks are expected to be cautious.
"As a result, NBFCs could still find a footing in the second half of the current fiscal," the rating agency said.
Despite intensifying competition from banks, NBFCs are expected to tighten their underwriting standards because of worries over asset quality deterioration, it added.
Access to incremental funding will be the bigger challenge, as reflected in corporate bond and commercial paper issuances of NBFCs over the past 20 months or so, the report stated.
On long-term repo operations (LTRO) the report said "LTRO is a one-time facility so the pace of fund raising via traditional routes bears watching".
NBFCs with strong parentage or those that are part of large corporate groups (accounting for nearly 70 per cent of sectoral AUM) should continue to fare relatively better on the fund-raising and disbursement fronts, it added.
