India Ratings (Ind-Ra) has maintained a negative outlook on the non-banking finance company (NBFC, retail and wholesale) and housing finance company sectors for 2HFY21, amid COVID-19 related business disruptions. Considering the unabated spread of the virus at pan-India level, Ind-Ra opines that time required for NBFC operations to return to normalcy could be prolonged.
"Athough the liquidity and funding environment has improved for better rated entities post July, there would be asset quality issues impacting overall profitability in FY21 and beyond. Thus, NBFCs have increased their focus on collections and have tightened underwriting standards; portfolio growth would take a back seat," India Ratings has said.
Growth in assets under management would be flattish for NBFCs (earlier estimate of 8%-10% yoy) and in lower single digits for housing finance companies in FY21. Capitalisation remains reasonable, given the muted growth outlook, to absorb moderate asset quality stress.
"As the debt moratorium was in effect during April to August 2020, the Indian securitisation market witnessed transactions getting concluded selectively. The agency expects the market to open up for a significant number of transactions, once pool delinquency data starts flowing in and stabilises, thereby improving investor confidence. On the other hand, the agency expects pent-up demand from investors for assets, and supply from originators for liquidity generation, may drive securitisation volumes," the rating agency has noted.