Assets under management (AUM) of non-bank lenders are expected to shrink 1-3% in FY21, a first in nearly two decades, as disbursements see a sharp drop, rating agency Crisil said on Wednesday.
The last de-growth in NBFC AUM was seen in FY2003, said a spokesperson for Crisil in an email to Mint.
For this analysis, Crisil has included housing finance companies (HFCs) but excluded government-owned NBFCs.
If the top five non-banking financial companies (NBFCs) are excluded, Crisil said, then the decline could be even sharper at 7-9%, and added that lower repayments during the loan moratorium period and capitalisation of interest accumulated will, however, help limit it.
The rating agency, in a report, said there are four factors at play when it comes to disbursements. The first is the challenging macroeconomic environment, which would curb underlying asset sales, especially in the two biggest segments of housing and vehicle finance.
Second, there is a sharper focus on liquidity as incremental funding is not easy to come by for many players in a confidence-sensitive scenario. Thirdly, stiff competition from banks as funding costs for many NBFCs remain relatively high and lastly, tightening of underwriting standards by non-bank lenders amid weak economic activity and expectations of increasing delinquencies.
"Crisil’s analysis of the largest segments of the NBFC AUM pie shows that most segments could witness contraction in the current fiscal. The silver lining, however, would be gold loans, which constitute around 5% of the AUM. Growth here is seen to be relatively higher as more individuals and micro enterprises go for it to meet immediate funding needs," said Krishnan Sitaraman, senior director, Crisil Ratings.
The report said in the current environment, competition from banks, especially in asset classes such as home loans and vehicle finance, is expected to be higher given that banks have surplus liquidity and will focus on these asset classes in the retail space.
But in real estate and structured finance, NBFCs have been catering to borrowers at the project stage, where banks do not have a major presence, it said.
"As for micro, small and medium enterprises, especially loan against property, and the unsecured segments, even banks are expected to be cautious. As a result, NBFCs could still find a footing in the second half of the current fiscal," the report added.
It pointed out that access to incremental funding will be a bigger challenge, as reflected in corporate bond and commercial paper issuances of NBFCs over the past 20 months or so. That apart, there have been very few securitisation transactions after the onset of covid-19 because of asset-quality fears and lack of granular data on collection efficiency.