The asset quality of non-banking finance companies (NBFCs) could weaken sharply in the current fiscal, as the Covid-19-related lockdowns have significantly disrupted the borrower-level cashflow, ICRA Ratings said.

“Assuming a slippage of 5 per cent to 10 per cent of the assets under management (AUM) under moratorium, non-bank NPAs could increase to 5 per cent to 7 per cent by March 2021 from about 3.3 per cent to 3.4 per cent in March 2020,” it said.

NBFC asset quality is likely to be more impacted than housing finance companies (HFCs), with segmental NPAs touching nearly 7 per cent to 9.5 per cent by March 2021, it further said. In contrast, HFCs could witness NPAs of about 3.4 per cent to 4.8 per cent.

AM Karthik, Vice-President and Sector Head, Financial Sector Ratings, ICRA, noted that the portfolio under moratorium for some large NBFCs is as high as 70 per cent to 80 per cent, with the sectoral average of about 52 per cent. For HFCs, the average portfolio under moratorium is about 28 per cent.

“The additional Covid-19-related provision carried by NBFCs is about 0.7 per cent (of the AUM), while for HFCs it is about 0.2 per cent. The envisaged sharp increase in the Stage-3 assets post moratorium window and weak economic indicators would warrant entities to further revise their expected credit loss models and increase provisions, thus impacting their earnings,” he said.

Many of these lenders could turn more risk-averse though the liquidity profile of non-banks has remained adequate overall to meet near-term requirements.

“Focus on collections would remain crucial in the near term. While the capital profile of non-banks is expected to remain adequate, some entities are expected to raise capital to bolster their liquidity and solvency profile as the economic outlook remains sombre,” Karthik further said.

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