NBFCs’ bad loans to rise to 5-7 pc in current fiscal: Study
   Date :03-Jul-2020

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Business Bureau :
 
NON-BANKING financial companies (NBFCs) asset quality is likely to worsen to 5-7 per cent in the current financial year due to weak economic growth on account of disruptions caused by coronavirus-related lockdown, according to a report by rating agency Icra.
 
 
The lockdown has significantly impacted the cash flow position of NBFCs' borrowers, it said in the report. While the moratorium extended by the NBFCs to their borrowers is likely to give them the much-needed breathing space, their asset quality performance is likely to see sizeable dislocation from the recent trends, it said. “Assuming a slippage of 5-10 per cent of the asset under management (AUM) under moratorium, non-bank NPAs could increase to 5-7 per cent by March 2021 from about 3.3-3.4 per cent in March 2020,” the rating agency said. Asset quality of NBFCs is likely to be more impacted than housing finance companies (HFCs), with the segmental NPA touching around 7-9.5 per cent by March 2021, the report said. Mortgage players, on the other hand, could witness NPAs of about 3.4-4.8 per cent in the current financial year, it said.
 
The rating agency’s Vice-President and Sector Head (Financial Sector Ratings) A M Karthik said, the portfolio under moratorium for some large NBFCs is as high as 70-80 per cent, with the sectoral average of about 52 per cent, while for housing finance companies (HFCs), the average is about 28 per cent. The additional coronavirus-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,” Karthik said. The agency said, the liquidity profile of non-banks has remained adequate to meet near-term requirements.