NBFCs' asset growth to halve to 10% in H2 on liquidity woes; disbursements decline by 20-40%: Crisil report

Mumbai: Difficulties in getting funding will halve the non-bank lenders’ asset growth to around 10 percent in the second half of the current fiscal, a report said. The asset quality of retail loans is resilient, but the NBFCs’ (non-banking finance companies) non-retail book has to be monitored for potential stress, domestic rating agency Crisil said in its report on Wednesday. The report comes amid difficult times for the NBFCs, which started with the crisis at infra lender IL&FS, which extended to worries for the entire sector. Many were found to have borrowed short for long-term assets, resulting in asset liability mismatches that rattled investors. [caption id=“attachment_4180101” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The borrowings were from investors such as mutual funds, who have turned wary and have increased the rates at which they want to lend. Crisil said while the liquidity issues are easing slowly, disbursements by NBFCs have gone down by 20-40 percent, with a more cautious approach taken by the non-retail segments. The NBFCs, including housing finance companies, had notched up a 20 percent growth in their assets under management for the first half of the fiscal ending September, which will slow down to 9-10 percent in the second half, according to the report. “Over the medium term, as non-banks’ access to funding improves, retail asset classes especially, home loans and vehicle finance, which together account for over 50 percent of overall non-bank credit should exhibit relatively steady growth and asset quality,” said Krishnan Sitaraman, senior director, Crisil. He added that competition will remain intense from private sector lenders and large state-run lenders. Whole lending comprising loans to real estate developers and structured credit, which has been one of the growth engines in recent, will decelerate, the report said. It said delinquencies will increase because of a slow down in credit flow to this sector and also warned that the wholesale book is typically characterised by concentration risks, with the top five exposures accounting for 15-20 percent of the book. The agency said it is also “watchful” on small business financing, especially the loans against property (LAP) typically taken by entrepreneurs, saying such segments are sensitive to prolonged funding crunch. It pegged the non-performing assets (NPAs) in the LAP loans will cross the 3-percent mark. “Going forward, non-banks are expected to improve their liabilities management by increasing on-balance sheet liquidity buffers,” said Ajit Velonie, director, Crisil. He added that stronger liquidity policies like liquidity coverage ratio and net stable funding ratio mandated for banks, and closer monitoring of asset-liability maturity positions, can make non-banks more resilient to short-term liquidity shocks, and structurally strengthen the sector.