Nearly a third of loans by NBFCs are in risky segments, and the already elevated non-performing assets ratio for such lenders are expected to rise by up to 1 per cent in FY22 due to the impact of the second COVID-19 wave, a domestic rating agency said on Monday.
Estimate on the overall assets under management (AUM) growth for non-bank lenders has been revised down to 7-9 per cent as against 8-10 per cent earlier by Icra because of the setback in disbursements in the first quarter of the fiscal, impacted by the second wave.
"Entities would also be faced with increased asset quality pressures as prolonged stress in the operating environment would push the gross stage3/NPAs by about 0.50-1 per cent in the current fiscal; it increased by about 0.40-50 per cent during the last fiscal," the agency's vice president A M Karthik said.
About 30 per cent of the non-bank exposure is deemed to be in the risky segments like real estate, personal credit, microfinance, unsecured SME and segments of commercial vehicle and passenger vehicle financing, which were more severely affected by the pandemic, he added.
Geographically, large states like Maharashtra, Karnataka and Tamil Nadu, which accounted for around 40 per cent of the sectoral credit, were among the severely affected states by the second wave and witnessed tighter restrictions.
Demand for restructuring would go up in the current fiscal because of the prolonged stress in the operating environment and the non-availability of any blanket forbearance like loan moratorium, the agency said, pointing that restructuring in the last fiscal was about 1.5 per cent of the sectoral AUM.
Disbursements are likely to witness a 50-60 per cent decline in the April-June period when compared to the preceding March quarter but are expected to revive healthily in the latter part of the year to register a 6-8 per cent growth in FY22 as against the same in FY21.
The revised down AUM growth estimate of 7-9 per cent will still be higher than the 4 per cent achieved in FY21 when the pandemic had struck, it said, adding that low base and disbursements growth will be aiding the number.
The NBFCs sector will require about Rs 2 lakh crore of additional funding if it was to meet the envisaged growth, the agency said, underlining that capitalisation and liquidity profile remain a silver lining for the sector.
Earnings are expected to remain under pressure in FY22 and similar to FY21 levels, as credit cost is expected to remain high and similar to the last fiscal, in the base case scenario, it noted.
The emergence of any further waves of infections and its consequent impact on the performance of NBFCs would remain key sensitivity in the near term, the rating agency said.