Tag: ICRA Ratings

Icra survey, BFSI News, ET BFSI

Personal Finance

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Around 42 per cent of non-banking financial companies (NBFCs) expect a growth of more than 15 per cent in their asset under management (AUM) in fiscal 2021-22, says an Icra Ratings survey. The findings are based on a survey of 65 non-banks, constituting around 60 per cent of the industry AUM.

The agency conducted the survey to understand the impact of the second wave of COVID-19 on these entities and their expectations going forward.

It said NBFCs growth expectations have moderated vis-a-vis the expectations six months earlier. This follows the possible impact of Covid 2.0 on business in Q1 FY2022.

“While 42 per cent of the issuers (NBFCs by number) are expecting a more than 15 per cent growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8 per cent, indicating that larger players in the segment expect a relatively moderate growth in FY2022,” the agency’s Vice President (Financial Sector Ratings) Manushree Saggar said.

With most of the lenders (74 per cent in AUM terms) indicating an up to 10 per cent AUM growth, the agency expects the growth for the overall industry to be about 7-9 per cent for FY2022.

Within the non-bank finance sector, segments like MFIs, SME-focussed NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages, supported by good demand and lower base, she said.

The survey said with gradual easing of lockdowns and moderation in fresh cases of Covid and with increased vaccination coverage, the lenders are optimistic on growth pick-up in balance part of FY2022 and expect it to be higher than the growth seen in FY2021.

However, the non-bank finance companies are expecting the asset quality related pain to persist in the current fiscal as well, it showed.

“Overall, 87 per cent of issuers (by AUM) expect reported gross stage 3/ NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated,” it said.

Over 90 per cent of lenders (by AUM) expects the credit costs to remain stable or increase further over FY2021 levels.

On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, the agency said.

Saggar said with no blanket moratorium and reflecting the stress on the cash flows of the underlying borrowers, mid-sized lenders (AUM between Rs 5,000-Rs 20,000 crore) are expecting a higher share of restructuring under Restructuring 2.0.

“Overall, the restructured book of non-bank finance entities is expected to double to 3.1-3.3 per cent in March 2022 from 1.6 per cent in March 2021,” Saggar added.

The agency said a significantly higher number of issuers (56 per cent) are expecting to raise capital in FY2022 as compared to the earlier survey, wherein only 28 per cent of the issuers were expected capital raise in FY2022.

It expects the pre-tax profitability for non-bank finance companies in FY2022 would remain similar to the last fiscal which was around 30 per cent lower than the pre-Covid levels.



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Small finance banks see loan collections drop as Covid rages, BFSI News, ET BFSI

Banking & Finance

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With the Covid pandemic spreading fast into the hinterland, small finance banks are feeling the heat.

The second Covid wave is resulting in a delay in collections this month, though banks are much prepared than last time when they were caught unawares by the pandemic.

The impact is more in smaller towns rather than the rural areas which have seen good monsoon. Also, several bank employees are down with Covid, hampering collection efforts.

As per a report by Emkay Global, the first fortnight of April 2021 has been weak in terms of business activity which is down by 20% across various segments due to lower working days and onset of an aggressive second wave of Covid-19 infections. This is expected to fall further with far stricter enforcement of localised lockdowns.

Cautious lenders

According to experts, credit appetite is likely to remain intact but lenders may turn cautious, which could hurt growth in the near term.

The collection efficiencies were improving from August-September onwards on a month-on-month basis across asset classes. However, a year back, the restrictions announced so far are lower in trajectory or intensity. So while there will be an impact on collections and delinquencies, the impact should be lower than what we saw in Q1 of last year.

But if there was a rise in the intensity of cases accompanied by containment measures and restrictions, it could further impact collections.

The spread intensity and duration of the pandemic, how long the lockdown and curbs last and vaccine trajectory will decide the severity of hit to the SFBs.

Microfinance hit

The mainstay of small finance banks, the microfinance loans are likely to face asset quality pressures in the near term due to the recent surge in Covid infections.

However, a majority of microfinance institutions (MFIs) will be able to withstand any stress due to their improving collection efficiency and good on-balance sheet liquidity, Icra Ratings said.

“We estimate asset quality pressures for the MFI industry to continue in the near term and the same may get accentuated with the recent increase in Covid-19 infections and localised restrictions/lockdowns,” the agency’s Vice President and Sector Head (financial sector ratings) Sachin Sachdeva said.

The agency noted that even though the near-term outlook for MFIs is clouded given the Covid induced disruptions, the overall long-term growth outlook for the domestic microfinance industry, including MFIs and micro finance-focused small finance banks (SFBs), remains robust.

The collection efficiency (total collections/scheduled demand) of the sector improved to around 102 per cent in December 2020.

The disbursements also started picking up from Q2 FY2021 onwards, which is expected to help the MFI industry achieve growth of 9-11 per cent in its assets under management (AUM) in FY2021, it said.

Collection efficiency

Sachdeva said the improvement in collection efficiency and pickup in growth in AUM in H2 FY2021 has helped the industry witness marginal improvement in the overdue portfolio (0+ days past due (dpd)) to 16.7 per cent as on December 31, 2020, which had earlier increased to 18.1 per cent as on September 30, 2020 after the lifting of the moratorium.

There has been further improvement in Q4 FY2021 as well. However, overdues remain significantly higher than pre-Covid levels, he said.

“We estimate the credit costs to rise significantly to 6-7 per cent (spread over two years: FY2021-FY2022) from 1.5 per cent in FY2020, he said.



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Banks see improvement in solvency profile in FY21

Banking & Finance

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Banks’ solvency position is relatively better, thereby providing some comfort to their loss-absorption abilities, according to ICRA.

Capital raise, coupled with lower Net Non-Performing Assets (NNPAs), resulted in an improvement in solvency profile for banks during FY21, the agency said in a note.

ICRA noted that public sector banks raised ₹12,000 crore (0.2 per cent of risk weighted assets – RWAs) and private sector banks raised ₹53,600 crore (1.3 per cent of RWAs) of equity capital from market sources during FY21.

In addition, the government also infused ₹20,000 crore (0.3 per cent of RWA) into the public sector banks as part of its budgeted recapitalisation for FY21.

“With decline in Net Non-Performing Assets and improved capital position driven by fresh capital raise during FY21 as well as internal accruals that were buffered by sharp decline in bond yields, the solvency position for the banks stands relatively better providing some comfort to their loss absorption abilities,” as per the note.

With the said capital raise, the Tier I capital position of public sector banks improved to 10.99 per cent as on December 31, 2020, from 9.7 per cent as on March 31, 2020, while for private sector banks, it improved to 16.66 per cent from 14.1 per cent, the note said.

ICRA observed that the Additional Tier-I (AT-I) bond market for public sector banks (PSBs) revived in FY21 with more PSBs issuing AT-I bonds as compared to last year.

However, the recent change in valuation norms of these bonds could reduce the appetite of mutual funds for incremental investments in these bonds, it added.

Anil Gupta, Sector Head – Financial Sector Ratings, ICRA Ratings, said: “As against our estimates of Tier-I ₹32,800-43,100 crore of capital requirements, which factor in ₹23,300 crore of AT-I bonds, where call option is falling due in FY22, the government has budgeted equity capital of ₹20,000 crore for public sector banks for FY22.

“In case the AT-I markets remain dislocated in near term, the government may need to upsize the recapitalisation plan in public banks.”

 

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