NBFCs to see growth revival this year; NPAs may witness slight rise

Mumbai: Non-banking financial companies (NBFCs) showed resilience in 2021 despite the Coronavirus pandemic woes and are expected to witness continued momentum in growth this year.

This year, the growth will be driven by the uptick in the economy, stronger balance sheet, higher provisions and improved capital positions of NBFCs.

On the other hand, gross non-performing assets (NPAs) of NBFCs are likely to rise, following the Reserve Bank of India's (RBI) move to tighten the NPA norms in November 2021.

"Our baseline assumption is that the worst is behind them (NBFCs) and things will start improving here on. We expect NBFCs to show higher growth and they will benefit from the economy moving up," Crisil Ratings Ltd Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said.

The asset under management (AUM) of shadow banking players is expected to grow at 6-8 per cent in the current financial year and 8-10 per cent in the next financial year, Sitaraman said.

Recently, the Trends and Progress of Banking of India in 2020-21 report released by the RBI said, "With increased pace of vaccinations and the broadening revival of the economy, the NBFC sector is expected to remain buoyant."

ICRA Ltd Vice-President and Sector Head A M Karthik said the NBFC sector, including housing finance companies (HFCs) but excluding infra-focussed and government-owned entities, experienced a roller-coaster trend in the past 12-18 months.

The rebound in the second-half of FY2021 on the back of the pent-up demand and after relaxation of the COVID-19 lockdown supported growth and earnings performance, he said.

Karthik also said this fragile recovery was hindered by the second wave of the pandemic in the first quarter of FY2022.

The impact was relatively limited vis-a-vis the past fiscal, with the sector bouncing back in the second quarter of FY2022 in terms of disbursements and AUM (asset under management) growth, he added.

Mortgage financier Indiabulls Housing Finance's Deputy Managing Director Ashwini Kumar Hooda said, "I think 2022 will be a very good year. Already, we have seen that real estate (sales) has picked up and volumes are almost 30-50 per cent higher than the previous year."

With lower interest rates, rising income and stable property prices, there will be demand for home and home loans.

"So, the growth in home loans will be at least 15-20 per cent during the year 2022," he said.

In the current cycle, all home sales are backed by end-user demand and there are no investors in the market, he added.

To strengthen supervision over NBFCs, the Reserve Bank of India (RBI) introduced scale-based regulation and revised NPA recognition and upgradation norms during 2021.

The revised norms included the classification of special mention account (SMA) and NPA on a day-end position basis and upgrade from an NPA to standard category only after clearance of all outstanding overdues.

CARE Ratings Senior Director Sanjay Agarwal said that with the new RBI's asset classification norms, NPAs of NBFCs are likely to be elevated compared to FY21 levels.

In a report released in November 2021, CARE Ratings said there would be an increase of up to 300 basis points (bps) in gross NPAs with a limited impact for shorter-tenure loans due to the revised

NPA norms.