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Icra Revises AUM Growth Outlook For Retail NBFCs To 5-7% From 8-10% In FY22

The agency said the growth outlook would be exposed to downside risk in case of significant disruptions caused by the new wave of infections in Q4 FY2022.

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Domestic rating agency Icra Ratings Thursday revised the asset under management (AUM) growth outlook of retail non-banking financial companies (NBFCs) to 5-7 per cent for the fiscal 2022 from an earlier expectation of 8-10 per cent.

In the first half of FY2022, retail NBFCs grew by less than one per cent.

"Apart from the various regulatory changes over the last 3-4 months (such as scale-based regulations, prompt corrective action framework etc) and a muted H1 FY2022, we note that some of the key segments of retail-NBFCs, especially vehicle finance, are faced with supply-side constraints, which could pull-down growth vis a vis our expectation, even if the demand remains less impacted by the new wave of infections," the agency's Vice President (financial sector ratings) A M Karthik said.

He expects AUM growth to revive to 8-10 per cent in FY2023.

The agency said the growth outlook would be exposed to downside risk in case of significant disruptions caused by the new wave of infections in Q4 FY2022.

At present, while the infections rates remain high, the operational disruptions have been quite limited, it said.

The agency expects stage-3 assets of retail-NBFCs to settle at about 5.3-5.8 per cent (net of write-offs) by the end of this fiscal. The overall write-offs in Q1 and Q2 FY2022 remained high at 2.4 per cent (annualised) of the AUM, similar to FY2021.

In view of the tightened NPA recognition and upgradation norms notified by the Reserve Bank of India (RBI), the gross stage 3 (GS3) reporting vis--vis NPA reporting to the RBI could see increased divergence, it said. However, the same is not likely to affect the risk profile of NBFCs in the near term.

Karthik said the increase in the restructured book has been on expected lines as it doubled over the March 2021 level and stood at 4.5 per cent of the AUM. Of the total outstanding restructured book of retail-NBFCs, about 70 per cent was done in H1 FY2022.

As restructuring in the current fiscal was largely done in Q2 FY2022, generally with a moratorium of 3-6 months and, as the commencement of repayments from these accounts, in Q3/Q4 FY2022, coincides with the new wave of infections, any significant disruption would impact the asset quality of the sector, Karthik noted.

The agency expects the credit costs in FY2022 to be lower than last year's level in the base case.

Assuming no adverse disruptions on account of new covid-19 infections, Icra expects the return on average managed assets (RoMA) of retail-NBFCs to improve in the current fiscal and reach pre-covid levels of 2.6-2.7 per cent in FY2023 as credit costs are expected to reduce from the peak witnessed in FY2021, Karthik said.

(PTI)


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