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Crisil Ratings in its latest report has said that after weathering multiple challenges over the past three fiscals, asset under management (AUM) of non-banking financial companies' (NBFCs) and housing finance companies (HFCs) is set to grow 8-10 percent in the fiscal 2023, helped by improvement in economic activity and strengthened balance sheet buffers.

The agency expects AUM growth to be at 6-8 per cent in fiscal 2022. The growth in the previous fiscal was 2 per cent. It said that many NBFCs have built higher liquidity, capital and provisioning buffers in the recent past. That, combined with improving economic activity, puts them in a comfortable position to capitalise on growth opportunities. Besides, it said the gross non-performing assets (GNPAs) of non-bank lenders are expected to rise by 25-300 basis points based on asset class following recent clarification on income recognition, asset classification and provisioning (IRAC) norms.

However, the increase in GNPAs because of the revised recognition norms will be largely an accounting impact because, given the improving economy, the credit profiles of borrowers are not expected to deteriorate. Consequently, it said ultimate credit losses are not expected to change significantly. It noted that overall, fragile assets (GNPAs + slippages due to the impact of regulatory norms and from the restructured book) are seen at Rs 1.3-1.6 lakh crore, tantamount to 5-6 per cent of the industry's AUM as of March 2022. This, however, does not factor in the impact of a third wave of Covid-19, especially the just-discovered Omicron variant, which is a risk factor.