India Ratings maintains stable rating outlook for NBFCs in FY23
1 min read 25 Feb 2022, 06:11 PM ISTIndia Ratings also expects NBFCs to maintain loan growth of around 14% year-on-year in FY23, with FY22 growth closing at 7%-8%
PremiumMUMBAI : India Ratings and Research on Friday maintained a neutral sector outlook and a stable rating outlook for non-banking finance companies (NBFCs) in FY23.
It believes that FY23, in absence of any negative event, would see normalization of business activities, after facing challenges in the past few years following the default by Infrastructure Leasing and Financial Services Ltd leading to liquidity challenges and then the covid-19 pandemic.
“NBFCs would begin the year with sufficient capital buffers, stable margins and sizeable on-balance sheet provisioning, while adequate system liquidity would aid funding. Nevertheless, an expected increase in systemic interest rates and asset quality issues in some segments due to the lagged impact of pandemic would be a drag on the operating performance," it said.
The sector, the rating agency said, has been facing increased regulatory oversight and push towards convergence with banks through various measures such as scale-based regulation, realignment in asset quality classification and prompt corrective action norm. The incremental impact of the notification on NPA recognition, however, will be moderate as the maximum impact has already been seen in Q3 FY22 figures and NBFCs are holding adequate provisions, it said.
India Ratings also expects NBFCs to maintain loan growth of around 14% year-on-year (y-o-y) in FY23, with FY22 growth closing at 7%-8%. It believes FY23 could be a year of normalcy in disbursements. The products such as loans against property, housing loans and vehicle finance could witness a higher demand than personal and unsecured business loans which saw a higher demand during the pandemic.
“Growth in the vehicle finance segment could revive depending on the availability of vehicles which are facing component shortage due to the pandemic, along with an increase in borrower confidence towards an economic recovery," it said.
Overall, the rating agency believes NBFCs have the required resources to take advantage of the improved operating environment to grow their franchisee, provided there are no further waves of the pandemic.
