Loan delinquencies of non-banking finance companies (NBFCs) could dart up 50-250 basis points (bps) this fiscal, depending on the segment of operation, because of vulnerability in borrower cash flows, according to credit rating agency Crisil.
The agency said this is a base-case estimate without factoring in loan restructuring and the Covid-19 affliction curve.
As per this estimate, as of March-end 2021, the projected delinquency in the home loan segment is 1.7-1.9 per cent (against estimated 1.1-1.3 per cent as at March-end 2020); vehicle finance, including construction equipment (8.0-8.5 per cent against 6.0-6.5 per cent); loans against property (6.0-6.5 per cent against 3.5-4.0 per cent); unsecured SME loans (6.0-6.5 per cent against 4.0-4.5 per cent); and unsecured loans – consumer durable and personal loans (4.0-4.5 per cent against 2.0-2.5 per cent).
Covid-19 afflictions
Crisil observed that the rapid increase in Covid-19 afflictions and intermittent lockdowns will increase asset quality challenges of non-banking financial companies.
The trend in monthly collection efficiency till August 31, 2020 (unadjusted for moratorium) shows there is still some way to go before reaching pre-pandemic levels, it added.
“While the recent restructuring scheme afforded by the Reserve Bank of India would be a leash on reported non-performing assets (NPAs), underlying challenges continue,” the agency said.
Crisil expects Assets under management (AUM) of NBFCs to de-grow this fiscal. This de-growth will be for the first time in nearly two decades.
“Managing collections, after the end of moratorium, is crucial. Moratorium uptake was higher in April and May, while collections were slack with a stringent lockdown in place.
“Though collections have improved since June as the economy began opening up, the pace of improvement and extent of ultimate credit losses will be the key monitorables going forward,” Crisil said.
Krishnan Sitaraman, Senior Director,Crisil Ratings, opined that while there has been an improvement across segments over the past four months, collections in the wholesale, MSME, and unsecured segments are still much lower than before the pandemic.
“Now that the moratorium has ended, self-employed borrowers are likely to be impacted more because of slow resumption of economic activity and continued local restrictions. On the other hand, the salaried borrower segment will be more resilient despite pay cuts and job losses,” said Sitaraman.
Restructuring scheme
The agency underscored that restructuring scheme for MSME borrowers and personal loans announced by the RBI may now limit the rise in NPAs in these segments. Nevertheless, NBFCs are expected to be prudent in offering restructuring selectively to deserving accounts and not in a blanket manner.
According to Ajit Velonie, Director, Crisil Ratings: “As opposed to reported GNPA, collection efficiency will be a better yardstick to measure asset quality challenges now. Given the trend till August 2020 and the lingering uncertainties, it is imperative that NBFCs create capital buffers for asset-side risks.
“The good part is we have seen many of them raising capital of late. Those with weak capital buffers may see their credit profiles getting affected.”