Loan disbursements by non-bank lenders saw a 'temporary' and 'expected' reversal in trend for the quarter ended 30 June after a previous two-quarter growth, according to a non-banking financial company performance update by Indian credit rating agency ICRA.
“The second wave has temporarily pushed back the revival for the sector. As a base case, ICRA expects overall disbursements for FY2022 [financial year 2021-22] to be higher by about 6-8% on a y-o-y basis, on the back of the two consecutive years of y-o-y contraction,” said Manushree Saggar, vice president and sector head at ICRA India.
Loans given by non-banking financial companies (NBFC) were lower by about 55% on-quarter for the said period because of the absence of a moratorium that prevailed in the previous two quarters. The fall would have been more but for some recovery in July due to pent-up demand, according to the Moody's-owned agency.
After the global outbreak of Covid-19 infection in March 2020, India’s Reserve Bank of India announced a moratorium on payment of loan instalments for borrowers so as to tide over the crisis amid the worldwide economic lockdown.
The central bank also kept benchmark interest rates at a record low level and vowed to resort to a monetary policy that would help push the economic growth rate.
ICRA said that asset quality or the loan repayment defaults for non-banks weakened sharply in the latest quarter as lockdowns imposed by states to counter the second Covid-19 wave affected the collection processes.
The surge in overdue was the sharpest in the recent past, as borrower level liquidity got stretched with no loan moratorium unlike in the last fiscal year. According to ICRA’s estimates, 45% of borrowers availed moratorium as of August 2020, which had an impact on the fragile recovery in borrower cash flows.
Performance to improve
The restructured book increased for both NBFCs and housing finance companies in view of the stress faced by the borrowers on account of the second wave, according to the report. While the availability of the restructuring window is till September 2021, the steady improvement in the collection efficiencies bodes well for the NBFC segment, the report added.
“Assuming there are no further lockdowns, ICRA expects the earnings performance to improve in the subsequent quarters as credit costs would moderate with the reduction in overdue from June 2021 levels," added Saggar.
"Optimistically, if the collection efficiency trends post a steady and healthy revival and if slippages remain contained, then profit before tax may also benefit from reversals in provisions.”