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Non-banking financial companies (NBFCs) are likely to see up to 250 basis points (bps) increase in their delinquencies in the current fiscal, says a report.

The rapid increase in COVID-19 afflictions and intermittent lockdowns will increase asset quality challenges of NBFCs, already grappling with the economic slowdown since last fiscal, rating agency Crisil Ratings said in a report.

"Loan delinquencies of NBFCs could dart up 50-250 (bps) this fiscal, depending on the segment of operation, because of vulnerability in borrower cash flows," the report said.

This is a base-case estimate without factoring in loan restructuring and the COVID-19 affliction curve, it said.

The report stated that, in home loans, the largest NBFC segment, asset quality is expected to be relatively better than in the other segments. Salaried customers make up over two-thirds of the home loans portfolio, and self-employed the balance.

"We expect delinquencies in home loans to rise 30-50 bps for salaried professionals and nearly 150 bps for self-employed/ affordable housing segments this fiscal," it said.

In vehicle finance, the second largest NBFC segment, asset quality will depend on improvement in macroeconomic environment as commercial vehicles constitute bulk of the portfolio, the report said.

As per the report, the MSME and unsecured segments are likely to see the cascading impact of lockdown on the operations of borrowers and lenders, with heightened risks of salary cuts and job losses, and weak economic activity.

However, with entities typically adopting aggressive write-off policies, the reported NPAs for unsecured loans may not reflect the true stress in the segment, the agency said.

It said the wholesale segment, as in the past year, will be in a cleft stick because of the impact on cash flows of borrowers and slowdown in real estate sales.

From a recovery perspective, a lot will depend on the timelines and modalities of lifting of lockdowns and return to normalcy in operations of NBFCs.

The rating agency's senior director Krishnan Sitaraman said while there has been an improvement across segments over the past four months, collections in the wholesale, MSME and unsecured segments are still much lower than before the pandemic.

"Now that the moratorium has ended, self-employed borrowers are likely to be impacted more because of slow resumption of economic activity and continued local restrictions," he said.

On the other hand, the salaried borrower segment will be more resilient despite pay cuts and job losses, he added The agency said assets under management (AUM) of NBFCs are also expected to de-grow this fiscal, and managing collections, after the end of moratorium, is crucial.

It further said the restructuring scheme for MSME borrowers and personal loans announced by the RBI may now limit the rise in NPAs in these segments.

Nevertheless, NBFCs are expected to be prudent in offering restructuring selectively to deserving accounts and not in a blanket manner, it added.

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