After a tough run, the assets under management (AUM) of non-banking financial companies (NBFCs) are expected to grow again from next fiscal, Crisil Ratings said on Friday.
Accordingly, the de-growth in the current fiscal - AUM of NBFCs is set to grow again - although at a relatively subdued 5-6 per cent.
The industry has witnessed a stellar growth of 18 per cent per annum in AUM between fiscals 2014 and 2018.
However, the pace decelerated to a stutter since the credit event of September 2018 due to funding access challenges, followed by asset quality worries due to the Covid-19 pandemic this fiscal.
Nevertheless, recent months have seen some green shoots.
"Despite an estimated GDP growth of 10 per cent next fiscal, overall NBFC sector growth is likely to be slower because access to funding remains a challenge due to concerns about the impact of the pandemic on asset quality," Crisil Ratings President Gurpreet Chhatwal said in a statement.
"Additionally, competition is expected to be more intense from banks - which are flushed with low-cost deposits and better placed with improved capital buffer than in the previous years."
According to the statement, the challenges faced by NBFCs in gaining funding access at optimal costs will mean they cede overall market share to banks in the near term, especially in their two biggest segments - home loans and new vehicle finance.
"While growth would be a challenge in the near term, the most important monitorable would be how asset quality pans out as we approach the next fiscal," the statement said.
"The trend in monthly collection efficiency ratio (MCR: unadjusted for moratorium) till November shows a marked improvement, especially in vehicle finance segment. However, three months after moratorium, there is still some way to go before collections reach pre-pandemic levels."
Besides, the agency cited that higher MCR is attributable largely to overdue and advance collections, while current collection remains below pre-pandemic levels.
Furthermore, Crisil estimates the stressed assets as on September 2020 for the overall NBFC sector at Rs 1.6-1.8 lakh crore which translates into 6.5-7.5 per cent of industry AUM.
"Given the macro-economic challenges that the country is navigating through, GNPAs are expected to increase across almost all asset segments with gold loans and home loans seeing the least impact."
On the liabilities side, the agency pointed out that dependency on banks for incremental funding remains high.
"The government and regulators have provided some relief in the form of regulatory interventions such as Targeted Long Term Repo Operations, Partial Credit Guarantee and Special Liquidity Scheme, which have partially aided fund raising."
"But here, too, the investors are the banks. The debt capital markets and securitisation route, big sources of incremental funding for NBFCs till fiscal 2019, have been subdued as investors are still waiting to see sustained track record and consistency in collections."