Stressed assets of non-banking financial companies (NBFCs) are likely to touch Rs 1.5-1.8 lakh crore, or 6-7.5 per cent of their assets under management (AUM) by the end of this fiscal, says a report. However, the one-time COVID-19 restructuring window, and the micro, small and medium enterprises (MSME) restructuring scheme of the Reserve Bank of India (RBI) will limit the reported gross non-performing assets (GNPA), Crisil Ratings said.
"This fiscal has brought unprecedented challenges to the fore for NBFCs. Collection efficiencies, after deteriorating sharply, have now improved, but are still not at pre-pandemic levels. "There is a marked increase in over dues across certain segments and players," the agency's Senior Director Krishnan Sitaraman said in the report.
He expects gold loans and home loans to stay resilient, with the least impact among segments. The RBI in its Financial Stability Report, released last month, said GNPAs of NBFCs increased to 6.3 per cent as of March 2020 from 5.3 per cent as of March 2019. The report had said the asset quality of non-bank players is expected to deteriorate further due to disruption of business operations caused by the pandemic, especially in the industry sector, one of the major recipients of NBFC credit.
The Crisil report further said alongside wholesale loans (dominated by real estate and structured credit), vehicle finance, MSME finance and unsecured loans have been in the spotlight this year due to a rise in stressed assets. For vehicle finance, the agency expects the impact to be transitory, and collection efficiencies to continue improving over the next few quarters as economic activity improves.
According to the agency, the big challenge this year will be the unsecured personal loans segment, where underlying stress has increased significantly with early-bucket delinquencies more than doubling for many NBFCs. Unsecured loans to MSMEs is another area where underlying borrower cash flows have been affected. "However, despite the potential asset-quality stress, reported metrics may stay benign on the back of high write-offs," the report added.
It said NBFCs have managed asset-quality challenges in the past and their experiences will be useful in navigating the current milieu. For instance, many NBFCs have reoriented their collection infrastructure and are using technology more centrally, which has improved their collection efficiencies, it said.
Many have also raised capital and increased provisioning to build stress-absorption capacity. Such steps will help limit the impact of asset quality challenges on NBFCs' balance sheets in the days to come, the report added.