The reduction in Gross Non-Performing Assets (GNPAs) is forecasted to continue in FY2023 following the reduction of 6 bps in Q1 FY 2023. The GNPA assessment has been retained at 2.7-3.0% as of March 31, 2023. With growth in both the scale as well as improvement in asset quality indicators, the profitability is forecasted to revive almost to the pre-Covid level by the end of FY 2023.
The Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) sector has a record year-on-year portfolio growth on the books of 15% (13% adjusted YoY) to Rs 12.7 crore as on June 30, 2022. The portfolio growth on the books in Q1 FY 2023 was high as the last two fiscals registered a moderate growth in the first quarter.
ICRA in its latest research report forecasts the overall on-book portfolio growth for FY 2023 to be lower than what was witnesses in Q1 FY 2023. Moreover, the rising interest rate scenario may also moderate the growth to some extent.
Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, says, “The buoyancy seen in the on-book portfolio growth rate in the industry, post the second wave of Covid, persisted and the overall growth continued rising in Q1 FY2023. Going forward, demand is expected to remain firm and ICRA accordingly retains its estimate of growth of 10-12% in the HFCs’ on-book portfolio in FY 2023.”
The asset quality recovery was upwards in Q1 FY 2023 and the GNPAs declined by six basis points (bps) to 3.1% as on June 30, 2022, from 3.2% as on March 31, 2022. This was owing to rise in the on-book portfolio and recovery in the non-housing segment of some large HFCs. ICRA maintains this is against the general trend of an increase in the GNPAs in the first quarter of any fiscal.
The industry also continued to see good recoveries from the restructured book and with growth in the assets under management (AUM). The standard restructured book declined to 1.3% of AUM as on June 30, 2022, from 1.7% as on March 31, 2022.
“The decline in the GNPAs to 3.1% as of June 30, 2022, was in line with ICRA’s estimate of 2.7-3.0% as on March 31, 2023. Though, generally the asset quality indicators deteriorate in the first quarter of a fiscal, this year it was different, as the continuing recovery efforts by HFCs and healthy growth in the on-book portfolio helped the industry. The improvement in GNPAs in Q1 FY 2023 was driven by improvement in GNPAs of some large HFCs and it was not broad based. Nevertheless, ICRA expects further improvement in FY 2023 and retains its GNPA estimate of 2.7-3.0% by March 31, 2023,” added Sachdeva.
The HFCs have been maintaining healthy balance sheet liquidity for the last few quarters. Most of the HFCs have gradually reduced their reliance on short-term funding sources like CP (Commercial Paper). This has helped improve asset-liability mismatches in the near-term buckets. With the reduced uncertainties and increasing interest rate scenario, HFCs are expected to reduce balance sheet and on-book liquidity from the current high level. It is nevertheless expected to remain comfortable.
Sachdeva further said, “While the Net Interest Margins (NIMs) may be impacted, due to the rising interest rate scenario, the overall profitability of HFCs is expected to improve to the pre-Covid level with Return on Assets (RoA) of 2.0-2.2% in FY2023, driven by lower credit cost requirement supported by improving asset quality and high provision cover. Keeping the credit costs under control would, therefore, be critical for incremental profitability.”
(The writer is CEO, Track2Realty)
Ravi Sinha is a journalist with nearly two decades of cross-discipline media exposure. He is the CEO of real estate think-tank group Track2Realty. He has been writing extensively on the real estate sector for nearly a decade. Evaluation of real estate brand performance is his expertise and he has immense insight into consumers’ psychograph in the property market.
Twitter: https://twitter.com/ravitrack2media
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