India Ratings and Research (Ind-Ra) has maintained a stable outlook on the non-bank finance company (NBFC) sector and on the major NBFCs rated by it for FY18. Ind-Ra believes that NBFCs would continue to gain market share on account of their nimbleness & efficiency and fill the space vacated by mid-sized public sector banks owing to either capital constraints, flight to safety or limited ability to price in the risk. Public sector banks’ year-on-year loan growth in 9MFY17 was almost flat.
The rating agency, however, also believes that the government’s drive to integrate informal economy into the formal segment and reduce unaccounted income, and digital push, if followed through, will significantly change operating dynamics for some of the asset classes.
Few of the competitive strengths of NBFCs especially the informal method of income assessment for certain asset classes (loan against property, new commercial vehicle (CV) lending) may become less relevant in the medium to long term and increase banks’ participation, it said.
The agency said that some of the asset classes in the retail asset segment, which had started showing stable delinquency rates in 1HFY17, are likely to see asset quality pressures in 4QFY17. This may flow into 1HFY18 as the lagged impact of demonetisation is felt across retail and wholesale NBFCs.
Most highly rated NBFCs are structurally strong with strong buffers of capitalisation, profitability and liquidity, to absorb shocks. Capitalisation ratios of highly rated NBFCs remain well above the minimum regulatory requirement of 10 per cent under Ind-Ra’s stress test conditions.
Recently, both the regulator and government have been maintaining a favourable stance towards the sector; starting with the latest announcement where SME loans up to INR20 million by NBFCs will be covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises and the government notification covering systemically important NBFCs under SARFAESI Act.