NBFCs to report 14 per cent year-on-year AUM growth in FY23

Non-Banking Finance Companies

Non-Banking Finance Companies (NBFCs), including home finance companies (HFCs), are likely to register a 14 per cent year-on-year increase in assets under management in the current fiscal year, according to India Ratings.

“GNPA could rise moderately to 5% in FY23 from 4.6% in 1QFY23 for NBFCs and to 3% from 2.7% for HFCs, largely due to the new NPA recognition norms setting in from 1 October 2022; however, credit cost would remain stable due to the adequate provisions built-in,” says Jinay Gala, associate director, India Ratings.

In terms of asset classes, the ratings agency predicts commercial vehicles will gradually recover, with collection efficiency increasing; nonetheless, inflationary pressure on borrowers’ income profiles may face debt service issues, putting pressure on milder delinquencies.

Furthermore, due to increasing prices and borrowers preferring used automobiles to maintain appropriate operational cash-flows, new vehicle demand may be limited. Disbursements may increase to some extent as a result of the holiday season.

Tractors might return to normalcy as the monsoon improves and agricultural revenue levels remain unaffected by the epidemic and rising minimum support prices. The loan against property (LAP) market will remain sluggish due to growth hurdles caused by stagnating property values and borrowers who already have collateral in hand.

Low-ticket LAP would outperform high-ticket LAP because the former is related to critical services; the services sector would outperform the manufacturing sector.

For H2FY22-23, India Ratings and Research has altered the outlook for NBFCs and HFCs from improving to neutral. Following the epidemic, the industry saw an increase in collection efficiency and payouts.

With the return of normality in lending, on-balance-sheet liquidity would also return to normalcy, mitigating the impact of rising funding costs and safeguarding margins to some extent. A decreased credit cost for H2FY22-23 would also help profitability. Higher inflationary pressures on borrowers and interest rates may impede demand normalisation in the short run; however, holiday season demand may boost baseline credit offtake.

The Indian securitisation market saw increasing transaction volumes as economic activity increased in Q1FY22-23. So far this year, front-end supply has been driven by greater funding demand and originators locking in returns ahead of projected interest rate rises.

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Recent pass through certificate deals, on the other hand, were priced at higher yields of 50-100bps (basis points). Under normal market conditions, Ind-Ra anticipates securitisation volumes to return to pre-COVID levels.

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