It can be noted that almost all the NBFCs have been under severe liquidity stress since the fall of industry major IL&FS in September 2018. The crisis has been so bad that the third largest home finance player DHFL has been sent to bankruptcy courts, also because of the large fraud alleged to have committed by its management.
The spike in bad loans is being driven by the realty books, which has almost trebled as of the September 2019 quarter to 10 per cent, says the Crisil report.
"But it is not the traditional segments-retail books -- where the material concerns lie. It is the wholesale loan book where more significant slippages are expected to manifest as portfolios come out of moratorium," Crisil said in a note without quantifying how much will be the spike.
The crisis in the wholesale books will be led more by real estate and structured credit, which comprise only 16 per cent of the total assets of NBFCs at ₹3.8 lakh crore as of March 2019.
These segments are experiencing heightened headwinds as financial flexibility of many underlying operating companies in this space and realtors have been impacted due to the overall slowdown. Moreover, a major chunk of the loan book is under moratorium. That means NPAs could jump when loans come out of it.
The reported NPAs in the realty segment is estimated to have risen to 3.3 per cent as of September 2019, from 1.8 per cent as of March 2019. About 40 per cent of the book, including lease rental discounting, was still under moratorium as of September 2019.
Since the book under moratorium and the lease rental discounting books have low delinquencies, the numbers include only those under moratorium and excludes lease rental discounting books. This results in NPAs standing at 10 per cent as of September 2019 almost thrice the reported NPAs.
The report further noted that the "slowdown hasn't spared retail loans either as non-performing assets, measured as 90 days past due for NBFCs are expected to continue to rise by another 30 to 150 bps by March 2020, depending on the asset class. This is on the back of 20 to 150 bps increase seen in the first half of fiscal 2020".
The retail loan book comprises vehicle and home loans, which constitute over half the NBFCs' assets, that witnessed NPAs inching up.
"Of the 40 per cent loan book under moratorium, around half is expected to come out of moratorium by March 2021 which will result in incremental slippages. Refinance for the segment has also slowed down further aggravating matters," the report said.
Further, loans against property book, which is around 9 per cent of the total, have been in the red for the past few years, with NPAs inching up 1.75 times to 3.3 per cent as of September 2019 from 1.9 per cent as of March 2016.
The only area where there is some sense of sanity is in the traditional retail loan portfolios, the report said, adding home loans, the largest chunk at 34 per cent or worth ₹8 lakh crore as of March 2019, continue to demonstrate why this segment is among the safest asset classes. Home loan NPAs inched up by a mere 20 bps in the first half of FY20.
But, delinquencies are expected to rise from here for three reasons -- the deepening slowdown, a rise in self-employed portfolios, and rise in the share of affordable housing loans in the overall credit pie. That said, they would still remain comfortable and relatively lower than other asset classes.
In vehicle financing, which is the second largest segment with 21 per cent of the book at ₹5 lakh crore as of March 2019, the 90 dpd has increased 70 bps from March 2019 to September 2019.
Though there could still be some slippages, NPAs would still be lower than the peak witnessed around five years earlier at 10 per cent.
While home loan stress has steadily rose from 60 bps in FY17 to 70 bps in FY18 and to 90 bps FY19 to 1.2 per cent in September 2019, while the same in the vehicle finance declined from 9.7 per cent, 7.5 per cent, 4.8 per cent and to 5.8 per cent, respectively, during this period.
But, stress has been steadily increasing in the loans against property book during this period from 2.6 per cent, 2.7 per cent, 2.9 per cent and to 3.5 per cent, respectively.