Non-banking finance companies are likely to see normalisation of business activities in the fiscal year 2022-23, in the absence of any negative event, India Ratings and Research said on Friday.

NBFCs would maintain loan growth of around 14 per cent year-on-year in the next fiscal with growth in the current fiscal at about 7 to 8 per cent, it added.

“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,” it said in its outlook for the sector.

Stable rating

The agency has maintained a neutral sector outlook and a stable rating outlook for NBFCs for 2022-23.

“FY23 could be a year of normalcy in disbursements,” it said, adding that products such as loans against property, housing loans and vehicle finance could witness a higher demand than personal and unsecured business loans which saw a higher demand during the pandemic.

The gold loan segment could see moderate growth in tandem with gold prices along with opening up of other financing avenues for borrowers.

NBFCs’ stage 3 assets could increase to six per cent by 2022-23 from 5.6 per cent in the third quarter of the fiscal, the agency has projected. This would primarily be due to slippages from the restructured and Emergency Credit Line Guarantee Scheme supported book, it said. However, the credit cost impact is likely to be moderate as NBFCs have created adequate provisioning buffers. 

A rising interest rate would impact funding costs for incremental borrowings across lenders, India Ratings and Research said.

“The existing on-balance sheet liquidity would help in maintaining funding costs for certain quarters,” it further said but noted that the cost of incremental borrowings is likely to rise across capital market instruments.

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