NBFC retail credit to grow 18% this fiscal: Study

Mumbai: The retail credit of Non-Banking Financial Companies (NBFCs) is expected to grow 16-18 per cent in the current fiscal on the back of rising demand in the new commercial vehicle segment and also given the general pick-up in business environment, says a report.

The retail credit had witnessed a growth of 14.5 per cent in the previous previous financial year. According to domestic credit rating agency, ICRA, the tractor segment could witness a dampening of growth as lenders remain cautious in light of the weak rainfalls over the past three crop cycles.

While benign operating environment is positive for NBFCs asset quality, reversal is expected in FY17. Asset quality of NBFCs is expected to benefit from the stronger economic outlook, it said.

Ninety-plus day delinquencies have stabilised at around 5.4 per cent in first half of 2016, although these remain higher compared with 4.7 per cent in March 2014. Overall in FY16, with delinquency forward flows stabilising and economic prospects in general improving, ICRA expects delinquency indicators for retail focused NBFCs could see some reversal towards the latter part of the year.

ICRA expects the lifetime losses of retail-focused NBFCs to remain at manageable levels, considering the secured nature of most of the asset classes. Further, at a consolidated level, retail-focused NBFCs should have an adequate buffer to absorb losses, given their provisioning cover of around 49 per cent and un-provided NPAs-to-networth being low at 10-11 per cent.

Furthermore, the Budget for FY16 had announced that NBFCs with an asset size in excess of Rs 5 billion would be permitted access to the provisions of the Sarfaesi Act, which once implemented would improve NBFC ability to make recoveries from immovable asset financing, such financing constitutes around 18 per cent of NBFC retail credit, largely in the mortgage segment, it said.

Reported gross NPAs, however, would increase with migration to tighter NPA recognition norm-gross NPA per cent of retail focused NBFCs, excluding captive financiers, have stabilised at 4.2 per cent in September 2015 compared with 4.1 per cent in June 2015.

This, however, is higher than 3.4 per cent in March 2015 largely on account of migration of NBFCs to tighter NPA recognition norms. NBFC could witness some hardening incremental funding cost in H2-16 with tightening of prudential investment limits of mutual funds, the report said.

The profitability of NBFCs to remain under pressure with migration to more stringent NPA recognitions. However, capitalisation for NBFCs is expected to remain adequate notwithstanding expected pickup in credit growth and compression in internal accruals, the report said.

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