Moody's Find Indian NBFCs' Assets Still Vulnerable

Moody's Investors Service said in a new report that although loan collections improved at the rated Indian non-bank finance companies (NBFCs) like Indiabulls Housing Finance Limited and IIFL Finance Limited, the loan delinquencies will inevitably increase, pressuring asset quality.

"Various types of support measures for borrowers meant that Indiabulls and IFFL Finance's asset quality remained stable in the first half of the fiscal year ending March 2021 (fiscal 2021)," said Alka Anbarasu, a Moody's Vice President and Senior Credit Officer.

"But delinquencies will eventually increase once all the support programs end, given the severity of the pandemic's impact on India's economy," Anbarasu added.

Despite weakening asset quality, funding will remain stable at all the NBFCs as public sector banks continue to purchase loans to fulfil their own quotas for lending to priority sectors, easing liquidity stress for NBFCs.

Indiabulls and IIFL Finance's profitability will continue to weaken as they increase credit costs to provision for potential bad loans. But modest growth in loans and loan assignments - that is, loan sales to banks - will help them maintain their capitalisation, the report elaborated.

Meanwhile, Muthoot Finance Limited reported improvements in asset quality and profitability as a surge in gold prices aided loan recoveries and disbursements. Its robust profitability will ensure that its capitalisation remains strong, the report said.