NBFC revival next year may be led by top 5 entities

The non-banking financial companies (NBFCs) can expect a turnaround in the next financial year but the recovery will be led by top five NBFCs alone while the larger sector continues to see a very gradual recovery.

This has come out from year CRISIL’s annual seminar on the NBFC sector that touched upon the problems and prospects of this vital financial sector.

According a report prepared by Motilal Oswal Financial Services based on the discussions at the NBFC event, from a flattish AUM (asset under management) in FY21, the NBFC sector is likely to see a rebound in growth to 5-6 per cent YoY in FY22.

However, this would be driven by the Top 5 NBFCs alone. Excluding these NBFCs, the sector is likely to witness flattish AUM in FY22 as well, the brokerage report said.

Home loans and gold loans will remain the key growth drivers with AUM growth in the high single digits and low teens, respectively. Vehicle finance should see only mid-single-digit growth in FY22, while the LAP portfolios should be largely flat, the report said.

Wholesale finance would see high-single-digit AUM decline in FY22. Thus, the trend of the ‘retailization’ of AUM is likely to continue in FY22 as well, it added.

On the asset quality front, home loans are best placed and likely to see only an 80bp increase in stressed loans by March 2021 for. current levels. On the other hand, vehicle finance and MSME finance would see a 400-500bp increase in stressed loans.

While liability-side concerns have abated owing to RBI measures such as the TLTRO and PCG schemes, bond issuances are at 50 per cent of levels from two years ago.

Moreover, while securitization volumes plunged in 1HFY21, they are likely to recover going forward. Nevertheless, co-lending and bank partnerships are the way forward for smaller NBFCs, according to the report.