Falling growth rates, derisking of loan books and funding constraints are going to impact non-banking finance companies with their growth hitting a decadal low of 6-8 percent this year from a high 15 percent last year, says a report.
With the headwinds unlikely to dissipate soon, non- banks, especially the wholesale-focused ones without strong parentage, would need to make structural changes and reorient their business models, leading to a recalibration of their asset under management mix, Crisil said.
“The problems of constrained funding access with rising borrowing costs, re-calibration and de-risking of loan books and a slowing economy is set to beat down asset growth of non-banking finance companies and housing finance companies to a decadal low of 6-8 percent this fiscal,” the agency said.
Confidence deficit of investors which was initially focused on asset-liability maturity profile has shifted to concerns over asset quality, especially for the wholesale book, it added.
“Non-banks with strong parentage account for nearly 70 percent of the sectoral AUMs, and have been less impacted on the funding front. They are likely to drive sectoral growth over the medium-term,” Crisil Ratings president Gurpreet Chhatwal said.
For standalone non-banks, the investor comfort with asset classes will dictate their access to funds at competitive rates, growth outlook and the extent of reorientation of business models.
In terms of asset quality, delinquencies are expected to inch up, albeit marginally, for retail asset classes such as home loans and vehicle finance, which together account for more than half of the overall sectoral assets, it said.
Slowdown has contributed to a cyclical uptick in delinquencies across retail segments, it said.
In the real estate and structured credit space, delinquencies are likely to increase sharply, the report said, adding, “the real estate sector is experiencing significant headwinds while the financial flexibility of many underlying operating companies in the structured debt space has been impacted due to the overall slowdown in their business.”
The report further said non-banks are adapting to the changing environment by embracing funding-light models such as co-lending or originate-to-sell which will support retail standalone non-banks and also aid their profitability.
They are also recalibrating and de-risking of loan book, especially for the large non-banks backed by strong parents, with reduction in wholesale exposures and tightening of retail underwriting scorecards.