Research Notes - UCB/NBFC
As of March 2017, there were 11,517 nonbanking financial companies (NBFCs) registered with the RBI, of which 179 are deposit accepting (NBFCs-D). There were 220 Systemically Important Non-Deposit accepting NBFCs (NBFCsND-SI). All NBFC-D and NBFCs-ND-SI are subjected to prudential regulations such as capital adequacy requirements and provisioning norms along with reporting requirements. The aggregate balance sheet size of the NBFC sector expanded by 14.5% during 201617 as compared to 15.5% during 2015- 16. Loans and advances increased by 16.4% and investments increased by 11.9% in March 2017, according to FSR 2017.
In terms of borrowings, commercial paper outstanding rose by 70.3% and debentures outstanding increased by 28.3% as on March 31, 2017; while bank borrowings declined by 3.7%. Net profit was down by 2.9% during 2016-17. Net profit as a percentage of total income also came down from 18.3% in 2015-16 to 14% in 2016-17. ROA and ROE also declined during the same period.
GNPAs of the NBFC sector as a percentage of total advances declined from 4.9% to 4.4% between September 2016 and March 2017. NNPAs as a percentage of total advances also declined from 2.7% to 2.3%.
As per extant guidelines, NBFCs are required to maintain a minimum capital consisting of Tier-I35 and Tier-II capital, of not less than 15% of their aggregate risk-weighted assets. The CRAR of NBFCs declined from 23.1% to 22% between September 2016 and March 2017.
Stress test on credit risk for NBFC sector as a whole for the period ended March 2017 was carried out under three scenarios: (i) GNPA increasing by 0.5 SD, (ii) GNPA increasing by 1 SD and (iii) GNPA increasing by 3 SD. The results indicate that in the first scenario CRAR of sector may decline to 21.6% from 22.0%, in the second scenario, it may decline to 21.5% and in the third scenario it may decline to 21% but remained significantly above the regulatory minimum required level of 15% under all the scenarios.
Stress test on credit risk for individual NBFCs was also conducted for the same period under the same 3 scenarios. The results indicate that under the first 2 scenarios, around 8% of companies will not be able to comply with the minimum regulatory capital requirement of 15%, while 11% of companies will not be able to comply with the minimum regulatory CRAR norm under the third scenario.