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Limited impact of Covid 3 on business along with expectation of a relatively improved demand is expected to accelerate the growth of non-bank finance companies(NBFCs) in FY23, said ratings agency ICRA.

Accordingly, the expected trend came to light via a survey of entities constituting over 50 per cent of the industry's assets under management (AUM).

In the ICRA's survey, entities expect asset quality to improve in FY2023 from current levels.

Besides, large entities are expecting to consume some of the excess liquidity for business growth while smaller ones intend to maintain liquidity amid expectations of funding constraints to support their liquidity profile in the event of any uncertainties and to provide comfort to various stakeholders.

Furthermore, entities are not expecting capital raise in FY23, possibly given the already adequate capital positions on the back of low growth in the last two fiscals.

Moreover, return indicators are expected to improve to near pre-Covid levels in FY23.

According to ICRA's survey report, these trends follows the possible impact of the improvement in the operating environment, limited impact of Covid 3 on business and expectation of a relatively improved demand.

In terms of key constraints for AUM growth, the report cited, increased competition from banks or larger lenders, demand and supply related issues, expectation on some funding constraints and regulatory tightening or increased oversight.

Additionally, the survey report said that in terms of new business sourcing, co-lending or fintech partnerships are not likely to contribute significantly to new business; only 10 per cent of entities expect more than 10 per cent contribution to new business through this route.

"ICRA expects the growth for the overall industry to be about 8-10 per cent for FY2023," said Manushree Saggar, Vice-President, Financial Sector Ratings, ICRA.

"In ICRA's view also, profitability for non-bank finance companies is expected to improve to near pre-Covid levels in FY2023. In the current fiscal, profitability would register an improvement over the previous year, on the back of a moderation in the credit cost."