Lenders face increasing delinquencies
The performance of non-banks needs to be observed closely, given its close economic linkages, according to A M Karthik, Vice President and Sector-Head Financial Sector Ratings of ICRA Ltd.
“With the pandemic affected operating environment yet to recover fully, lenders may face increased delinquency levels, although currently the same is lower than the previous ICRA estimates,” cautions Karthik on 8 Dec 2020.
The provision build-up and improved capital profile over the recent past, however, would provide a risk cushion to an extent.
Players would be face increased competitive pressures, going forward and most of them may turn cautious, as a result, the near-term growth would continue to remain stunted.
Assets under management (AUM) growth could revive to about 13-15% in FY2022, considering the lower base in FY2021 and the likely demand revival.
“Profitability, however, over the next 1-1.5 years, is likely to remain under pressure and lower than the levels witnessed pre-COVID,” he said.
Currently, non-banks are having 50% higher provisions, at about 3.1% of their AUM compared to about 2.0%, a year ago (Sept’19), according to Karthik.
Higher provisions will allow them to absorb near-term uncertainties to some extent. As for CEs, most entities have reported CE between 85-95% levels in September’2020 (NBFCs CE was ~ 70% in August & ~65% in July while HFCs CE was ~81% in August & ~78% in July).
The improvement is partly due to the closure of loan moratorium to borrowers because of the Covid-19 disruptions and given the fact that collections are typically higher in the last month of the quarter than during other months, he said.
The credit profiles of non-banks have been under pressure since H2 of FY2019 with a higher number of downgrades compared to upgrades. This is attributed to the weakening earnings/asset quality, subdued debt raising ability and the relatively large share of wholesale exposures where perceived risks are higher, said ICRA. #banking #assets #investment /fiinews.com
