Growth in AUM of NBFCs, HFCs may range from 9-11% by FY23
2 min read 20 Jul 2022, 08:11 PM ISTAs per ICRA's note, in FY22, the upside in AUM of NBFCs and HFCs was majorly driven by the steep growth witnessed in Q4 FY22. In this fiscal, the NBFC retail segment jumped 8.5% and the wholesale segment climbed 12%. On the other hand, HFCs recorded a growth of 10%.
PremiumThe asset under management (AUM) of NBFCs and HFCs may record double-digit growth by end of FY23. A research report of ICRA Ratings on Wednesday stated the growth could be between 9-11% by FY23 compared to a rise of 9.5% in the previous fiscal. Although the trajectory can change going forward, however, the merger of giants HDFC by HDFC Bank will result in a benign spread scenario for the segment.
As per ICRA's note, in FY22, the upside in AUM of NBFCs and HFCs was majorly driven by the steep growth witnessed in Q4 FY22. In this fiscal, the NBFC retail segment jumped 8.5% and the wholesale segment climbed 12%. On the other hand, HFCs recorded a growth of 10%.
The sharp growth in NBFCs' wholesale segment was driven by a low base and the rise in credit by large and parent-backed NBFCs which boosted their supply chain, capital market, and other corporate exposures.
ICRA pointed out that in terms of sector funding resources, the issuance of non-convertible debentures (NCDs) by NBFCs and HFCs breached a multi-quarter low in Q1FY23 to around 28% lower from Q1 of FY22 and also 65% less than Q1 of FY21.
The Q1FY23 issuance performance took a hit after RBI began hiking the policy repo rate by 40 basis points and 50 basis points in May and June 2022 along with elevated inflation prints that affected investors' appetite. ICRA also revealed that overall issuance was affected by a sharp fall in the participation of public sector undertakings (PSUs) operating in the space, and also private entity issuances plunged on a year-on-year basis.
Meantime, the commercial paper (CP) volumes were range-bound for the sector over the last two fiscals. However, overall CP issuances saw some uptick in the last few months, ICRA revealed.
Icra Ratings Vice President & Sector Head (Financial Sector Ratings) Manushree Saggar said yields for NCDs and CPs have reached the pre-Covid levels, though the spread over the risk-free rate remained quite low vis-a-vis the past. The same was driven by the favorable supply-demand environment on the back of limited PSU participation and access to bank funding at favorable rates, as reported by PTI.
Saggar added, "While these factors may change going forward, the expected merger of HDFC Ltd into HDFC Bank would still result in a benign spread scenario for the sector."
ICRA's note stated that entities may look to increase the share of short-term (ST) funding to support margin given the increasing interest rate scenario and competitive pressures.
Also, going forward, ICRA's note mentioned that sell-downs - securitisation or direct assignment (DA) - may emerge as the key funding source for the sector as asset quality-related concerns have reduced and the revival in growth observed in the recent past would support the sell-downs.
Overall, ICRA has factored a 100-basis points increase in the weighted average cost for the sector in fiscal FY23.
