Non-bank financing companies are finally shedding the Covid-era stress and could see a 40 basis point improvement in bad loan numbers, domestic rating agency ICRA said on Thursday.
The rating agency also non-banks to surpass pre-Covid level profits in the current fiscal year due to higher growth in assets under management, moderation in asset quality indicators and controlled credit costs.
ICRA has also revised the growth outlook for non-banks to 10-12% for the currency fiscal year. Within this retail non-banks are expected to grow at 12-14% while housing finance companies could grow at 10-12%.
The rating agency said that the growth will be broad-based across various sub sectors with microfinance and personal loans leading the growth. Vehicle financing loans that include commercial vehicles and passenger vehicles which had seen significantly subdued growth since 2020, are also expected to report higher growth numbers.
“Disbursements of non-banks and housing finance companies remained higher than the pre-pandemic levels for three consecutive quarters, indicating that the industry has finally come out of the long period of trough,” said Manushree Saggar, Vice President, Financial Sector Ratings, ICRA.
As per a survey conducted by the rating agency, most non-banks revised their growth estimations for the current fiscal year. Nearly 63% of the issuers (by value) and 67% (by number) are expecting an AUM growth of over 15% in FY2023.
ICRA expects the non-banks to report some moderation in reported asset quality indicators and credit costs by the end of March 2023.
“The asset quality indicators for these non-banks have been improving steadily since December 2021 as borrowers gradually recovered from the pandemic-induced stress,” it said in a press release. “The improvement has been on the back of higher collections, lower-than-anticipated share of restructured portfolio and controlled slippages from this book and reported ratios also benefiting from the base effect of high growth.”
The agency added that some improvement in asset quality could also be due to higher write-offs that remained elevated at 2.1% for NBFCs and 0.5% for HFCs in the first half of the current fiscal year.