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Improvement in economic activities and collection efficiencies will help reduce gross non-performing assets (GNPAs) of non-banking finance companies going ahead, which could come down by as much as 150 to 200 basis points by March 31, 2022, CRISIL Ratings said on Friday.
Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, “We expect GNPAs for NBFCs to reduce 150-200 bps by March 31, 2022. Some of the NBFCs that didn’t see a material impact on their NPAs, due to the implementation of the revised recognition norms, are not expected to revert to the earlier framework.”
Focus on the near-term overdues
Going forward, NBFCs are expected to focus on the near-term overdues to reduce delinquencies in the less than 60 days past due bucket and thus curb incremental slippages into NPAs, he further said.
According to the agency, reported GNPAs of NBFCs have increased to about 6.8 per cent as on December 31, 2021, which is a near 150 basis point increase over September 30, 2021. This was primarily due to adherence to the clarifications provided by the Reserve Bank of India’s (RBI) circular on NPA recognition issued on November 12, 2021.
“But with NBFCs bolstering their collection process, and economic activity improving, NPAs should reduce in the road ahead,” it said, adding that there would be three reasons for asset quality metrics to improve going forward.
First is the RBI’s follow-up circular dated February 15, 2022, which defers the implementation of the NPA upgradation norm till September 30, 2022, CRISIL said. “This provides a reasonable transition time for NBFCs to recalibrate processes, revamp their collection infrastructure and teams, and persuade borrowers to align with the new dispensation,” it said.
Second is the expected improvement in macro-economic activity, which will act as a tailwind, while the third factor is the limited impact of the third wave of the pandemic that allowed businesses to remain functional with low disruptions.
It, however, cautioned that asset-quality metrics will remain sensitive to the performance of restructured portfolios.
A study by CRISIL Ratings shows that on a like-to-like basis, without the clarifications on NPA recognition — NBFC delinquencies (over 90 days past due) would have declined by about 30 basis points to 5.3 per cent as on December 31, 2021 over September 30, 2021.
“The improvement can be largely attributed to macroeconomic tailwinds and sharper focus on collections,” it said, adding that future waves of the pandemic, and their consequent impact on NBFC asset quality, will bear watching.
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