NBFCs' bad loans to rise to 5-7%: Icra

Non-banking financial companies' (NBFCs) asset quality is likely to worsen to 5-7% in the current financial year due to weak economic growth on account of disruptions caused by coronavirus-related lockdown, shows report by rating agency Icra.

The lockdown has significantly impacted the cash flow position of NBFCs' borrowers, it said.

While the moratorium extended by the NBFCs to their borrowers is likely to give them the much-needed breathing space, their asset quality performance is likely to see sizeable dislocation from the recent trends, it said.

"Assuming a slippage of 5-10% of the asset under management (AUM) under moratorium, non-bank NPAs could increase to 57% by March 2021 from about 3.3-3.4% in March 2020," the rating agency said.

Asset quality of NBFCs is likely to be more impacted than housing finance companies (HFCs), with the segmental NPA touching around 7-9.5% by March 2021, the report said.

Mortgage players, on the other hand, could witness NPAs of about 3.4-4.8% in the current financial year, it said.

The rating agency's Vice-President and Sector Head (Financial Sector Ratings) A M Karthik said the portfolio under moratorium for some large NBFCs is as high as 70-80%, with the sectoral average of about 52%, while for housing finance companies (HFCs), the average is about 28%.

The additional coronavirus-related provision carried by NBFCs is about 0.7% of the AUM, while for HFCs, it is about 0.2%.