NBFC biz to return to normal, FY23 loan growth set at 14%: India Ratings

After facing challenges over the past few years, Non-Banking Financial Companies (NBFCs) in India would see normalization of business operations and increase their loan portfolio by 14% on an annual basis in FY23. The NBFC sector is expected to register loan growth of 7-8% in the current financial year (FY22), according to India Ratings.

NBFCs faced liquidity problems following the default of Infrastructure Leasing & Financial Services Ltd in FY2019, and received a second hit when the Covid-19 pandemic hit.

These companies are expected to enter FY23 with sufficient capital buffers, stable margins and strong balance sheet provisioning, while adequate system liquidity would facilitate funding. Nonetheless, an expected increase in systemic interest rates and asset quality issues in some segments due to the lagged impact of the pandemic would be a drag on operational performance.

The rating agency said the sector is facing increased regulatory scrutiny and convergence with banks through various measures such as ladder-based regulation, asset quality classification realignment and the Rapid Corrective Action Standard.

The additional impact of the notification on the accounting for non-performing assets (NPA) will however be moderate, as the maximum impact has already been seen in the Q3FY22 figures and NBFCs hold adequate provisions.

Products such as home loans, home loans and vehicle financing could see higher demand than unsecured personal and business loans which have seen higher demand during the pandemic.

Growth in the auto finance segment could resume depending on the availability of vehicles that are facing component shortages due to the pandemic, as well as an increase in borrower confidence in an economic recovery.

The gold lending segment could see moderate growth along with gold prices, as well as opening up other funding avenues for borrowers. Funding for tractors could remain stable, with growth in line with that of the agricultural sector and rural government spending, he added.

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