Sanctions and disbursals by non-banking finance companies (NBFCs) have picked up strongly in the first quarter of financial year 2022, helped by the strong economic recovery and a low base.
Total sanctions by NBFCs have gone up by 37 percent to Rs 1,24,700 lakh crore in the first quarter of financial year 2022, as per data from Finance Industry Development Council, a representative body of asset and loan financing of NBFCs.
While disbursals data is not compiled at the industry level, ICRA in its analysis on September 13 said disbursements revived quite sharply in July 2021 on the back of pent-up demand. It expects overall disbursements to be higher by about 6-8 percent on a year-on-year basis.
Similarly, disbursals by rural-focused NBFC, Mahindra Finance, green an annual 42 percent in Q1FY22 although there was a 35 percent contraction compared to Q4FY21.
According to sanctions data compiled by CRIF & FIDC, strong growth is visible in most categories such as vehicles loans, housing loans, loans against securities, etc. compared to the first quarter of financial year 2021. But, the growth is largely on account of base effect.
Base effect refers to a jump in the current year growth numbers on account lower base last year. The only exception is equipment loans where muted growth was seen in the quarter.
“The sanction figures are pretty much reflective of disbursements and the trend is in the same direction,” said Raman Agarwal, area chair – NBFCs, at the Council for International Economic Understanding.
Despite the growth pick up, the figures are still far from a normal scenario.
According to rating agency ICRA, NBFCs’ performance in Q1 was impacted by a spike in overdues but it expects the trend to improve in subsequent quarters. Asset quality had weakened in the Q1 FY22 due to localised lockdowns impacting collections and, in turn, borrowers’ ability to repay.
The absence of loan moratorium availability was another reason for weakening of asset quality, as 45 percent of NBFC loans had availed a moratorium as of August 2020, ICRA highlighted in a note. Asset quality numbers are expected to moderate as the collection efficiency trends remain encouraging.
However, ICRA in its September note has given the outlook negative for NBFCs for FY2022. It expects 7-9 percent AUM growth, and growth to remain moderate in FY2022 as compared to the long-term average and access to adequate funding would be critical. On asset quality front, it expects 50-100 bps increase in GNPAs while reported NPAs (net of write-offs) to increase by 50-100 bps in FY2022.
ICRA also expects a funding requirement of Rs 2 trillion for NBFCs to support growth apart from financing existing/maturing lines.
India Ratings & Research (Ind-Ra) on September 1 said it expects growth for NBFCs to be maintained in the range of 9-10 percent. The segments with heightened delinquencies are two wheelers, passenger vehicles, unsecured & secured business loans and commercial vehicles. These segments could remain under pressure for the second half of FY22 as the business momentum remains subdued, Ind-Ra said.
Outlook hinges on third-wave
Industry experts Moneycontrol spoke to said the outlook for NBFCs looks bright but business sustainability hinges on the third wave of COVID-19.
“Obviously the pre-pandemic levels have not been reached, Q1 figures still show signs of positivity amidst localised lockdowns,” said Agarwal.
If there is no third wave, the NBFC industry may take-off, Agarwal adds.
Among the sectors, the auto industry is under pressure due to the shortage of semiconductors and production lines getting impacted, this could further impact the auto-finance business of small non-bank lenders
Auto-finance remains an area of concern and it remains to be seen how the chip shortage situation evolves, Agarwal said.
The credit demand is healthy after the second wave and the recovery has been sharp but it has to be seen how it sustains, said Jaipur-based Kamal Autofinance Pvt Ltd’s MD, Shreyans Kasliwal.
Pent-up demand may be a factor, but NBFCs said the last two months have been reasonably good.
If there is no third wave, NBFCs would close FY22 as a reasonable year. As of now the demand is quite healthy, Kasliwal said.