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Rating agency ICRA in its latest report has said that non-banking financial companies (NBFCs) are likely to close the current fiscal (FY23) and the next with a loan growth of 10-12 per cent and see around 50 basis points improvement in profitability, led by retail-focused players. It said retail-focused NBFCs are expected to grow 12-14 per cent while the housing finance companies may grow at 10-12 per cent. The forecast is based on the asset quality improvement and the overall pick up in credit demand.

However, the report stated that microfinance and personal loans, which together constitute a quarter of the Rs 25-lakh crore shadow banking sector, will continue to grow at high pace. Sectoral profitability will improve by 40-50 basis points (bps) this fiscal, supported by stable margins and lower credit cost, and will reach the pre-pandemic levels. It also said that while growth will be broad-based across various sub-sectors, microfinance and personal loans will be leading the growth chart. On the other hand, it said vehicle financing loans (commercial vehicle finance, passenger vehicle finance), which has remained significantly subdued since FY20, are also expected to report higher growth numbers, following an improvement in the operating environment.

According to the report, asset quality of non-banks has been improving steadily since December 2021 as borrowers gradually recovered from the pandemic-induced stress. The improvement has been on the back of higher collections, lower-than-anticipated share of restructured portfolio estimated at 2 per cent of total asset under management as of September 2022 and controlled slippages from this book and reported ratios also benefiting from the base effect of high growth. Overall, the majority stress from the restructured book is likely to be absorbed in FY23 and slippages are expected to remain range-bound. The agency, therefore, expects the NBFCs to report some moderation in reported asset quality indicators and credit costs by March 2023.