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India Ratings, on Thursday, said it has maintained a negative outlook on the non-banking finance company and housing finance company sectors for the second half of the fiscal year amid Covid-19-related business disruptions.
“Considering the unabated spread of the virus at the pan-India level, India Ratings opines that time required for NBFC operations to return to normalcy could be prolonged,” it said.
Asset quality issues
Noting that while the liquidity and funding environment has improved for better rated entities post July, it said that there would be asset quality issues impacting overall profitability in FY21 and beyond.
“NBFCs have increased their focus on collections and have tightened underwriting standards; portfolio growth would take a back seat,” it said.
It has estimated that growth in assets under management would be flattish for NBFCs and in lower single digits for housing finance companies in the current fiscal.
“Capitalisation remains reasonable, given the muted growth outlook to absorb moderate asset quality stress. As the debt moratorium was in effect during April to August 2020, the Indian securitisation market witnessed transactions getting concluded selectively,” the agency further said.
While noting that the book under moratorium has progressively declined for all segments, and collection efficiency has improved from April to August 2020, it said that collection levels are far lower than pre-Covid levels.
In the microfinance sector, collections have recovered substantially from near zero levels in April 2020.
“However, the agency believes rising rural consumer price inflation and per capita indebtedness of borrowers could worsen the debt servicing capabilities of borrowers, and, thus, has maintained a negative outlook for the second half of 2020-21 on microfinance loans,” it said.
Significantly, India Ratings has maintained a stable outlook on securitisation transactions for the second half this fiscal, backed by home loans, vehicle loans, secured business loan (loans against property) pools, given the seasoning and credit enhancement build-up in these transactions.
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