The overall non-performing loans of the NBFC sector is likely to increase to 7.8 per cent in financial year 2016-17 from an estimated 6.7 per cent in the current fiscal, says a report.
“The overall gross NPA ratio of NBFCs across asset classes is likely to rise to 7.8 per cent by March 2017, from 6 per cent at end-September 2015 and an estimated 6.7 per cent in FY16,” India Ratings and Research said in a report.
Of the 7.8 per cent gross NPL, 1.5-1.7 per cent of the increase will be due to the shift to 120-day NPL recognition norm in financial year 2016-17 from 150 days at financial year 2015-16. The norm says NBFCs will have to classify an asset as NPA if it stays overdue for 120 days.
By financial year 2017-18, NBFCs will have to shift to 90-day NPL recognition norm, which will bring them at par with the banks.
Cheaper funding
NBFCs’ access to cheaper funding sources and improving operating efficiencies could help them maintain adequate pre-provisioning operating profit buffers to cushion rising credit costs.
The report said moderation in incremental delinquencies in the sector will continue through financial year 2016-17, led by strengthening of risk management systems of lenders, an economic recovery and a portfolio mix shift to less volatile asset classes.
The revival in heavy and medium commercial vehicles led by fleet operators to trickle down to small road transport operators and driver-turned-owner segments, and boost the used vehicle market, it said.
“However, the small commercial vehicle market is likely to be under continued pressure, due to persistent overcapacity in the system,” the report said.
Rural economy
NBFCs with a higher exposure to the rural economy are also likely to see increased stress, until the agricultural economy revives.
The rating agency said NBFCs will continue to gain credit market share at the expense of banks, as banks struggle to raise capital for a successful transition to the Basel—III regime, which is forcing them to reduce credit growth. The retail-focussed NBFCs will gradually reduce their single product concentration by diversifying into other asset classes, primarily secured in nature.
Large NBFCs are likely to grow at 14 per cent in financial year 2016-17, with SME/MSME growing faster than commercial vehicles. — PTI
