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ICRA Ratings in its latest report has said that non-banking financial companies (NBFCs) and housing finance Companies (HFCs) witnessed an improvement in their asset quality in the fourth quarter of FY22 (Q4FY22) as the impact of the Omicron variant of Covid-19 was minimal and the slippage from the restructured book was lower. It said the gross stage 3 assets (loans overdue for more than 90 days) for NBFCs reduced to 4.4 per cent in March 2022 from 5.7 per cent in December 2021. It also said HFCs' gross stage 3 assets moderated and stood at 3.3 per cent vis-à-vis 3.6 per cent in December 2021.

The agency said that entities augmented their collections in view of the tighter Income Recognition, Asset Classification and Provision (IRAC) norms, which are applicable from October 2022. It also said NBFC write-offs remained elevated and marginally higher than the last fiscal, while HFC write-offs were modest. It noted that the slippage from the restructured book, especially for NBFCs, was lower than expected, which also favourably contributed to the asset quality performance.

According to report, the standard restructured book of NBFCs is estimated to have reduced to 2.7-3 per cent in March 2022 from the peak of 4.5 per cent in September 2021, while the same for HFCs moderated to 1.4-1.6 per cent from 2.2 per cent during the above-mentioned period. The performance of this book would remain monitorable, considering the weakening macroeconomic/operating environment and the balloon repayment schedule of some of these loans.