The assets under management (AUM) of non-banking finance companies (NBFCs) are likely to start growing next fiscal again, said Crisil on Friday.
“Navigating a raft of headwinds for over two fiscals – culminating in de-growth in the current fiscal – assets under management (AUM) of non-banking financial companies (NBFCs) is set to grow again – although at a relatively subdued 5-6% next fiscal,” the rating agency said adding that the turnaround will be led by larger entities with stronger parentage.
After a stellar growth of 18% per annum in AUM between fiscals 2014 and 2018, the pace decelerated to a stutter since the credit event of September 2018. This was primarily due to funding access challenges, followed by asset quality worries due to the Covid-19 pandemic.
According to Crisil, the challenges faced by NBFCs in gaining funding access at optimal costs will mean they cede overall market share to banks in the near term, especially in their two biggest segments – home loans and new vehicle finance.
“Despite an estimated GDP growth of 10% next fiscal, overall NBFC sector growth is likely to be slower because access to funding remains a challenge due to concerns about the impact of the pandemic on asset quality,” said Gurpreet Chhatwal, President, CRISIL Ratings,
“Competition is expected to be more intense from banks – which are flush with low-cost deposits and better placed with improved capital buffer than in the previous years,” he adds.
While growth would be a challenge in the near term, the most important monitorable would be how asset quality pans out as we approach the next fiscal. The trend in monthly collection efficiency ratio (MCR: unadjusted for moratorium) till November shows a marked improvement, especially in vehicle finance segment.
Given the macro-economic challenges that the country is navigating through, Gross Non- performiong assets GNPAs) are expected to increase across almost all asset segments with gold loans and home loans seeing the least impact.
On the liabilities side, dependency on banks for incremental funding remains high.
The debt capital markets and securitisation route, big sources of incremental funding for NBFCs till fiscal 2019, have been subdued as investors are still waiting to see sustained track record and consistency in collections, Crisil said.