NBFCs: Here's what Icra Ratings has to say on decline in AUM

During the first quarter of FY 22, the AUM of NBFCs has declined due to portfolio run down and lower distribution, according to a report by Icra Ratings. Disbursements for NBFCs and Housing Finance Companies (HFCs) declined again in the first quarter of FY22 and declined by about 55%, after rising sharply in the third and fourth quarters in FY 21, the report noted. The agency further said that given this subdued disbursements and portfolio rundown in the absence of any moratorium like in Q1 FY2021, the (AUM) for NBFC-segment shrunk in Q1 FY2022, while the HFC AUM remained flat.

Icra expects overall disbursements for FY2022 to be higher by about 6-8% on a YoY basis, on the back of the two consecutive years of YoY contraction, the report said.

The sector is expected to expand by 8-10% in FY 22, from an AUM perspective. Growth across all key target segments with regards to FY2021 was driven by improvement in demand on the back of low base, the report said.

Collection Efficiency remains encouraging

The asset quality for the non-banks entities weakened quite sharply in the first quarter of FY2022 because of the localised lockdowns imposed by various states on account of the second wave of COVID-19 infections, which impacted the collection process of these entities, the agency said.

Due to localised lockdowns imposed by various states on the back of second wave of Covid-19 pandemic, the asset quality for non-banks entities has weakened quite sharply in first quarter of FY22, the agency said. It also added that collection process of these entities were also affected.

The headline asset quality numbers are expected to moderate, as the trend in the collection efficiencies (CE) continues to remain encouraging, it added.

Further, the Collection Effeciencies (CE) continues to remain encouraging as the headline asset quality numbers are expected to moderate, the agency said.

The agency expects of a rise in basis points by 50-100 (bps) in the overdues in FY 2022, assuming there are no further Covid-19 lockdowns.

As write-offs remained elevated and provisions were on the incline, because of an increase in overdues, credit costs of NBFC spiked sharply in the first quarter of FY 22.

In regards to the fourth quarter of FY21, while Housing Finance Corporation’s non performing assets also increased during the period as provisions did not go up sharply similar to the NBFCs and write-offs were negligible.