AUM of non-banks to revive 7-9% in FY22: ICRA

The assets under management (AUM) of non-banks would revive in FY22 to about 7-9 per cent vis-à-vis a flattish performance in the current fiscal, according to credit rating agency ICRA.

The aforementioned projection specifically pertains to non-banking finance companies (NBFCs), excluding infrastructure NBFCs and Housing Finance Companies (HFCs).

The agency said non-banks would require additional funding lines of about ₹1.9-lakh crore to ₹2.2-lakh crore, apart from the refinance of the existing lines, to achieve the above-mentioned growth in FY22

NBFCs [excluding infra NBFCs] and Housing Finance Companies segment’s AUM had registered a growth at a CAGR (compounded annual growth rate) of 16 per cent over the period between March 2016 and March 2020.

More HFCs expect a higher growth (greater than 10 per cent) rate vis-à-vis NBFCs, and smaller and mid-sized entities (less than ₹20,000-crore AUM) expect higher growth rate vis-à-vis their larger peers, as per a survey conducted by ICRA across non-banks, involving about 60 entities, which together account for over 50 per cent of the sectoral AUM and about 23 investors.

Investors, however, have a relatively muted growth outlook vis-à-vis the issuers.

A M Karthik, Vice-President, Sector-Head Financial Sector Ratings, ICRA, observed that growth in FY22 is envisaged to be driven by the improvement in demand from all the key target segments vis-à-vis current fiscal, which was impacted by the Covid-19 lockdown.

“Some of the key segments which would bolster growth include gold loans, home loans, personal credit, rural finance and microfinance.

“Growth in the vehicle finance [commercial vehicle, passenger vehicle etc], business loans, including loan against property and other commercial lending segments, which are closely linked to the economic activities, are expected to take longer to register a reasonable revival,” said Karthik.

As per the survey, non-bank exposures to the commercial real estate and other large corporate/ wholesales exposures are expected to register a decline even in FY22 after the decline of about 15 per cent in FY20 and about 10 per cent expected contraction in FY21.

The survey said AUM growth would be contingent upon the access to adequate funding lines – incremental bank loans to non-banks, considering their high sectoral exposure to the segment, remains to be seen and would in-turn depend on overall bank credit growth.

While mutual funds registered some improvement in their exposures to non-banks over the recent past, sustainability of the same however is critical, it added.

ICRA opined that expected improvement in securitisation volumes in FY22 after a sharp contraction of FY21 and access to funding from other sources – retail or overseas lenders/investors – would be key for sustainable growth for the sector.

As per the survey, most issuers (about 70 per cent) expect to maintain or further augment their on-balance sheet (b/s) liquidity profile, while most investors (about 60 per cent) expect them to reduce their on-b/s liquidity.

“This is critical, as a divergence in this along with growth expectation could pose challenges for incremental funding to the sector and has the potential to affect growth revival in FY22 and a sustained improvement in the subsequent years,” cautioned the agency.

NPAs to increase

ICRA expects the slippages from the restructured book [estimated at 4-6 per cent of the AUM] to keep non-bank non-performing assets (NPAs)/ Gross Stage (GS) 3 assets at elevated levels even in FY22 after an increase of up to 200 basis points (bps) in FY21. One basis point is equal to one-hundredth of a percentage point.

The agency observed that collection efficiency, notwithstanding the improvement since April 2020, remains about 5-15 per cent lower than the pre-covid-19 levels, thereby exerting pressure on their current asset quality. While part of the stress could get restructured, slippages would increase in H2FY2021.

As per the survey, about 90 per cent of the investors expect NPAs to increase by about 100-200 bps by March 2021 vis-a-vis 40 per cent of the issuers. Further, another 40 per cent of the issuers expect the NPAs to remain stable vis a vis March 2020 levels.