Non-banking finance companies (NBFCs) are likely to report a 14% year-on-year loan growth in the next financial year because of higher demand in the secured asset class segment, India Ratings & Research said in its FY23 outlook for non-bank lenders. The rating agency expects NBFCs to report a 7%-8% loan growth in FY22.
Products such as loans against property (LAP) and housing and vehicle loans could witness a higher demand than personal and unsecured business loans which saw a higher demand during the pandemic, it said, adding that growth in the vehicle finance segment could revive depending on the availability of vehicles which are facing shortage of components. The gold loan segment could see a moderate growth in tandem with gold prices along with opening up of other financing avenues for borrowers.
NBFCs would begin the year with sufficient capital buffers, stable margins and sizeable on-balance sheet provisioning, while adequate system liquidity would aid funding. Nevertheless, an expected increase in systemic interest rates and asset quality issues in some segments due to the lagged impact of pandemic would be a drag on the operating performance,” India Ratings said.
The agency expects NBFCs’ stage 3 assets to increase to 6% by FY23 from 5.6% as on December-end, primarily due to slippages from the restructured and Emergency Credit Line Guarantee Scheme (ECLGS)-supported book. However, the credit cost impact is likely to be moderate as NBFCs have created adequate provisioning buffers. Further, rising interest rates will likely impact the incremental borrowing cost of all lenders, it added.
Housing finance companies are likely to grow 13% YoY in FY23 on the back of increasing geographic penetration and a possible rise in the loan ticket size, partly due to asset inflation. “India Ratings believes the sector could grow at 13% YoY in FY23 (FY22: 11%) with gross stage 3 numbers increasing to 3.3% from 2.8% in 3QFY22 (FY22: 2.9%), largely due to slippages from the restructured book (FY23: 1.7%; FY22: 2.1%). Additionally, 2% of AUM is supported by lending under the ECLGS which could also see slippages. The broad stage 3 number could rise by 70 bps as it was seen in 3QFY22 due to the change in NPA recognition norm,” Ind-Ra said, maintaining its ‘neutral’ sector outlook and a ‘stable’ rating outlook for NBFCs and HFCs.