Non-banking finance companies (NBFCs) and housing finance companies (HFCs) have enough cushion to deal with any challenges during the second half of FY2021-22 arising from the impact of the second wave of Covid-19 on their disbursements and collections, says a report.
India Ratings and Research in a report said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.
These factors provide 'enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks', it said.
The agency has changed the outlook to improving from stable for retail NBFCs and HFCs for the second half of the current fiscal.
It said the operating environment is dynamic due to the possibility of a third Covid wave, its intensity, regulatory stance and its impact.
In this environment, there is likely to be meaningful variations in the performance among different asset classes which would reflect on non-banks depending on their assets under management mix, the report said.
NBFCs with a diversified asset mix and non-overlapping customer segments could be considered better placed to navigate operating challenges and may report a less volatile operating performance, it said.
During the current fiscal, the agency expects growth for NBFCs to be maintained in range of 9-10 per cent and HFC growth could be maintained at 10 per cent.
The agency said asset quality for nonbanks had deteriorated in FY21, and there has been a further build-up in the first quarter of FY22, keeping headline numbers elevated in FY22.
"The rise in delinquencies was high in Q1 FY22 for NBFCs (top 10) and HFCs (top 10), where gross non-performing assets increased quarterly by 35 per cent and 26.5 per cent, respectively," it said.
It believes the segments facing heightened delinquencies for nonbanks are two wheelers, passenger vehicles, unsecured & secured business loans, microfinance and commercial vehicle and these segments could remain under pressure for H2 of FY22 as the business momentum remains subdued.
It said NBFCs are well capitalised to withstand any impact due to the fluid operating environment. Larger NBFCs have raised equity capital over the past 1-1.5 years and smaller NBFCs were anyways less levered.
"So, from a stress case perspective, the buffers are adequate to absorb any asset quality shock," it added.