By the end of the current financial year, rating agency Crisil expects stressed assets of non-banking financial companies (NBFCs) to touch Rs 1.5-1.8 lakh crore or 6-7.5% of the assets under management (AUM). However, reported gross non-performing assets would be limited due to the one-time Covid-19 restructuring window and the micro, small and medium enterprises (MSMEs) recast scheme offered by the Reserve Bank of India (RBI). Unlike previous crises, the pandemic has impacted almost all NBFC asset segments.
Operations of most of these lenders were curbed the most in the April-June quarter, when disbursements and collections were severely affected by the complete standstill in economic activity. Krishnan Sitaraman-senior director, Crisil Ratings, said, “This fiscal has bought unprecedented challenges to the fore for NBFCs. Collection efficiencies, after deteriorating sharply, have now improved, but are still not at pre-pandemic levels.” There is a marked increase in overdue amounts across certain segments and players, he added. Nevertheless, gold loans and home loans have been resilient, with the least impact among segments.
The past experience of handling asset quality will come to the rescue of NBFCs. For instance, many NBFCs have reoriented their collection infrastructure and are using technology more centrally, which has improved their collection efficiencies. Since the lockdown was lifted in phases, collection efficiency has improved, but is still some distance away from pre-pandemic levels in the MSME, unsecured and wholesale segments, given the volatility in underlying borrower cash flows. Stressed assets in the unsecured loans can be in the range of 9.5 to 10% by the end of FY21. Similarly, stressed assets in the real estate finance can shoot up to 15-20% by March end.
The big challenge this year will be the unsecured personal loans segment, where underlying stress has increased significantly with early-bucket delinquencies more than doubling for many NBFCs. For vehicle finance, however, Crisil expects the impact to be transitory, and collection efficiencies to continue improving over the next few quarters as economic activity improves. Unlike previous crises, the current challenges on account of Covid-19 impacted almost all NBFC asset segments. However, the restructuring schemes offered by the RBI will limit the reported gross non-performing assets (GNPAs), Crisil said.
Rahul Malik-associate director, Crisil Ratings, said, “How NBFCs approach restructuring will differ by asset class and segment.” While the traditional ones such as home loans have seen sub-1% restructuring, for unsecured loans it is substantially higher at 6-8% on an average, and for vehicle loans it is 3-5%, he added.