Non-performing assets of NBFCs may increase 5-7 per cent in FY21: ICRA

Rating agency ICRA expects non-performing assets (NPAs) of non-banking financial companies (NBFCs) to increase by 5-7 per cent during the fiscal year 2020-21, assuming a slippage of 5-10 per cent of the asset under management (AUM) under the moratorium.

As of FY20, the NPAs stood at 3.3-3.4 per cent. The primary reason for this deterioration in NPAs is the nationwide lockdown that halted economic activities.   

The rating agency said that the lockdown has significantly impacted the cash flow position of NBFCs' borrowers. It noted that 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 a sizeable dislocation from the recent trends.

Further, the 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. On the other hand, mortgage players could witness NPAs of about 3.4-4.8 per cent in FY21. It pointed out that the portfolio under the 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 rating agency further added that it expects a 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. It said that the liquidity profile of non-banks has remained adequate to meet near-term requirements. It added that while non-banks have extended moratoriums to its borrowers, not all lenders have extended a moratorium to the NBFCs.