Domestic rating agency India Ratings and Research (Ind-Ra) has maintained a negative outlook on non-banking financial companies (NBFCs) and housing finance companies (HFCs) for the second half of 2020-21 (2HFY21) amid Coronavirus disease (COVID-19) related business disruptions. It said growth in assets under management would be flattish for NBFCs as against its earlier estimate of 8-10 percent y-o-y, and in lower single digits for HFCs in 2020-21. It noted that considering the unabated spread of the virus at pan-India level, time required for NBFC operations to return to normalcy could be prolonged.
According to the report, although the liquidity and funding environment has improved for better-rated entities after July, there would be asset quality issues impacting overall profitability in 2020-21 and beyond. It also said the sector's capitalisation remains reasonable, given the muted growth outlook, to absorb moderate asset quality stress. It stated that NBFCs have increased their focus on collections and have tightened underwriting standards, and so portfolio growth would take a back seat.
The report further said to that extent, there could be some relief on credit costs; however, slippages could be higher for certain segments, resulting into higher credit costs. For NBFCs, it said the proportion of restructured book of the total assets under management could be in high single digits. Some of the segments which can witness higher asset quality pressure are commercial vehicles (CV), real estate loans and big ticket loans to SMEs.