‘Asset quality pressures would play out fully this fiscal as the level of economic activities are yet to pick up’
The resurgence of the Covid-19 pandemic is likely to impact the performance of assets under management of retail NBFCs in 2021-22, rating agency ICRA said on Wednesday.
Higher loan losses seen
Asset quality pressures would play out fully in this fiscal as the level of economic activities are yet to substantially pick up over the pre-Covid levels, with risks further compounded by recent rise in infection rate, it further said.
While NBFCs can proceed with the overdue recoveries post lifting of the Supreme Court order on the NPA classification in March 2021, ICRA notes that performance of most of the key target asset and borrower segments continues to be sub-optimal, which would impact realisations leading to higher loan losses.
“Entities have augmented their provisions steadily since the fourth quarter of 2019-20 and are currently carrying provisions of more than 50 per cent of the pre-Covid levels, the same is expected to be maintained at least for a few more quarters in view of the current uncertainties,” it said.
AM Karthik, Vice President, Sector-Head Financial Sector Ratings, ICRA, said, “Restructuring expectation averages around 2.6 per cent (ICRA sample of large NBFCs) presently and we expect reported Gross Stage 3 to increase steadily by about 50-100 basis points (over December 2020 levels) by March 2022, as a base case; and could inch-up further if the impact of the pandemic continues for longer period leading to lockdowns or other tighter restrictions.”
Revival in growth
ICRA expects the Retail-NBFC AUM, which is estimated to be about ₹10-lakh crore as of December 2020, to have grown by three to five per cent in 2020-21 as pent-up demand, post the lockdown, led to some revival in segments such as namely gold, microfinance, two-wheelers, and tractors.
In 2021-22, growth is expected to revive to about eight per cent to 10 per cent driven by improvement in demand from all key target segments compared to last fiscal.
Growth, however, would be contingent upon access to adequate funding lines, it further said, adding that the capital structure is expected to remain adequate.