BackRestructured book of non-bank financiers to double in March 2022, says Icra
The second wave of covid-19 infections has hit recovery in non-bank collections, witnessed in Q3 and Q4 of the last financial year, impacting the cash flow of the underlying borrowers and further prolonging the recovery process
PremiumMumbai: The restructured book of non-bank financial companies (NBFCs) and housing finance companies (HFCs) is expected to double to 3.1-3.3% of their assets in March 2022 from 1.6% in March 2021, rating agency Icra said.
While the restructured book for NBFCs is expected to be 4.1-4.3% as of March 2022, it is expected to be 2-2.2% for mortgage lenders. The second wave of covid-19 infections has hit recovery in non-bank collections, witnessed in Q3 and Q4 of the last financial year, impacting the cash flow of the underlying borrowers and further prolonging the recovery process, it said.
In view of the covid-19-induced stress, the Reserve Bank of India (RBI) allowed lenders to restructure their credit while maintaining the standard asset tag in FY21.
“NBFCs had a higher restructured book outstanding as of March 2021 vis-à-vis HFCs because of the nature of their exposures. For HFCs, security is in the form of mortgage while NBFC exposures are either unsecured or are backed by varied asset classes like vehicles, mortgages, plant and machinery, inventory, receivables," said A.M. Karthik, vice-president (financial sector ratings) at Icra.
Karthik explained that the target borrower segment also plays a key role as a high share of restructuring was observed in entities with assets under management (AUM) of less than ₹5,000 crore.
“Borrowers catered by these entities would have a relatively higher risk profile, also characterized by higher yields, which exposes them to increased vulnerabilities in a down-cycle or a stressed scenario," he said.
The report also pointed out that vehicle, small businesses, and personal loans which accounted for the bulk of the NBFC credit, faced asset quality-related pressures during the last fiscal.
Entities with a sizeable share of new and heavy and medium commercial vehicles witnessed higher restructuring while the same was modest for other segments like cars, two-wheelers, and tractors, it said.
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