NBFC delinquencies may see 250-bps spike: CRISIL

Rating agency CRISIL has estimated that delinquencies for non-banking financial companies (NBFCS) may rise by 50-250 basis points in the current fiscal year (FY21), as the sector grapples with an economic slowdown made worse by the Covid-19 pandemic, and authorities impose intermittent lockdowns to control the spread of the disease.

However, the one-time loan restructuring announced by the Reserve Bank of India (RBI) will somewhat restrict a huge rise in the reported gross non-performing assets (GNPAS), but the underlying challenges will continue.

While collection efficiency has improved significantly since the initial days of the pandemic-induced lockdown, there is still some way to go before the sector reaches pre-pandemic levels. As the moratorium offered by the RBI came to an end in August, managing collections will be of crucial importance for NBFCS.

“Moratorium uptake was higher in April and May, while collections were slack with a stringent lockdown in place. Though collections have improved since June as the economy began opening up, the pace of improvement and the extent of ultimate credit losses will be the key monitorables going forward,” CRISIL said in its note.

“While there has been an improvement across segments over the past four months, collections in the wholesale, MSME, and unsecured segments are still much lower than before the pandemic,” said Krishnan Sitaraman, senior director, CRISIL Ratings.

Among various asset classes, the home loan segment will be relatively better off. The rating agency expects delinquencies in home loans to rise 30-50 bps for salaried professionals and 150 bps for self-employed/affordable housing segments.

The vehicle finance segment is expected to see a steep rise in delinquencies as asset quality in this segment depends on improvement in macroeconomic environment as commercial vehicles constitute a bulk of the portfolio.

“The restructuring scheme for MSME borrowers and personal loans announced by the RBI may now limit the rise in NPAS in these segments. Nevertheless, NBFCS are expected to be prudent in offering restructuring selectively to deserving accounts and not in a blanket manner,” the rating agency said.