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NBFC loan growth in FY20 to hit a 10 year low: Crisil

With the headwinds unlikely to dissipate soon, non- banks, especially the wholesale-focused ones without strong parentage, would need to make structural changes and reorient their business models, leading to a recalibration of their asset under management mix, Crisil said on Wednesday.

, ET Bureau|
Updated: Dec 11, 2019, 08.09 PM IST
The report further said non-banks are adapting to the changing environment by embracing funding-light models such as co-lending or originate-to-sell which will support retail standalone non-banks and also aid their profitability.
MUMBAI: Faced with sustained challenges in raising capital at competitive prices and a slowing economy, non-banking financial (NBFC) sector is set to record their lowest loan growth in over a decade in the ongoing fiscal year of 2020, rating agency Crisil said on Wednesday.

As per Crisil’s forecast, Asset Under Management (AUM) for non-banks for the FY20 is set to be between 6 and 8 percent; nearly half of the 15 percent growth the sector recorded in the previous fiscal year. In comparison, NBFCs, between the financial year of 2010 and 2018, grew their loan books at an average growth rate of nearly 18 percent.

“The first half of the fiscal saw NBFCs growing their credit pool by at around 3 percent,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings. “With funding access more or less stabilised in the second half for many of these NBFCs, we estimate that sector may growth by another 3 to 5 percent.”

Since the collapse of Infrastructure Leasing and Financial Services (IL&FS) in September last year, non-bank lenders have struggled to raise funds owing to negative market sentiment surrounding the sector. Furthermore, in the absence of easy liquidity, several of these companies have also faced difficulties managing their short-term repayments due to lengthy maturity periods of their assets.

Crisil also pointed out that the prolonged period of liquidity tightness has also caused for an uptick in stress in wholesale NBFCs especially in the real estate and structured credit space due to headwinds in the sector and overall slowdown in business.

“Going forward rising delinquencies will be a key monitorable for NBFCs in the light of economic slowdown. Questions are also being raised over ability of non-banks to fund balance sheets beyond a certain size purely through wholesale liabilities,” said Sitharaman.

The rating agency has also predicted several granular NBFCs and microfinance institutes to approach the Reserve Bank of India for banking licenses under provisions for availing on tap licenses for small finance banks (SFBs). “In the recent past, we have seen some non-banks merge with Banks…And this could be an option that non-banks could seriously explore to sustainably mobilise retail liabilities,” according to Sitharaman.

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