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  3. NBFCs’ NPA to increase to 5-7% in FY21: ICRA

NBFCs’ NPA to increase to 5-7% in FY21: ICRA

02 Jul 2020 Evaluate

Assuming a slippage of 5-10 percent of the asset under management (AUM) under moratorium, rating agency ICRA said non-banking financial companies' (NBFCs) non-performing asset (NPA) could increase to 5-7 percent in the current financial year (FY21) from about 3.3-3.4 percent in FY20, due to the disruption in economic activity caused by the spread of coronavirus and the subsequent lockdown imposed to contain it. It said the lockdown has significantly impacted the cash flow position of NBFCs' borrowers. It noted that while the moratorium extended by the NBFCs to their borrowers is likely to give them the much-needed breathing space, their asset quality performance is likely to see sizeable dislocation from the recent trends.

The rating agency said asset quality of NBFCs is likely to be more impacted than housing finance companies (HFCs), with the segmental NPA touching around 7-9.5 percent by March 2021. On the other hand, mortgage players could witness NPAs of about 3.4-4.8 percent in FY21. It pointed out that the portfolio under moratorium for some large NBFCs is as high as 70-80 percent, with the sectoral average of about 52 percent, while for housing finance companies (HFCs), the average is about 28 percent. The additional coronavirus-related provision carried by NBFCs is about 0.7 percent of the AUM, while for HFCs, it is about 0.2 percent.

ICRA further said that the envisaged sharp increase in the stage-3 assets post moratorium window and weak economic indicators would warrant entities to further revise their expected credit loss models and increase provisions, thus impacting their earnings. It said the liquidity profile of nonbanks has remained adequate to meet near-term requirements. It added that while nonbanks have extended moratoriums to its borrowers, not all lenders have extended a moratorium to the NBFCs.

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