ICRA expects NBFCs’ retail AUM to grow 8-10% in FY23

Retail assets under management (AUM) of non-banking finance companies (NBFC) are expected to grow 8-10% in the next financial year and 5-7% in FY22, ratings agency ICRA said on Monday. However, the wholesale AUM of NBFCs is likely to shrink in FY22 and stabilise in FY23. Disruptions caused in the first quarter of the current financial year are weighing on the overall growth, the rating agency said. However, the AUM and disbursement trend is likely to remain stable in Q4FY22 owing to the limited impact of the third wave of the pandemic on the lending business. 

“Within the NBFC-retail segment, personal credit, microfinance and gold loans are likely to be the primary growth drivers as other traditional asset segments – vehicle finance and business credit – are still facing headwinds because of supply constraints and asset quality concerns,” a release quoted Manushree Saggar, vice president, financial sector ratings, ICRA, as saying. 

NBFCs that have aligned with the Reserve Bank of India (RBI)’s November 12 norms on upgradation of bad loans have reported a rise in their gross bad loans. The reported asset quality indicators have also been supported by sizeable write-offs. Last month, the central bank had extended the timeline by six months till September 30 for NBFCs to adhere to the new norms. 

According to ICRA, NBFCs and housing finance companies would require Rs 1.8-2.2 trillion of incremental fresh funding for meeting their growth requirement in the next fiscal. On the borrowing front, bank loans continue to remain the main funding source, especially for non-deposit-taking NBFCs. 

The net earning of these entities is expected to show improvements over the last fiscal and may improve to pre-Covid levels in the next financial year. As these entities maintain higher balance sheet, net margins are supported with favourable cost of funds and increased focus on collections and system augmentation.