The RBI and the government have announced several measures to boost liquidity for NBFCs.
Mumbai: A severe slowdown in vehicle sales and moderate demand in retail housing have led to weak disbursements for almost all non-banking finance companies (NBFCs) and housing finance companies (HFCs) irrespective of their access to funds.
Even as a prolonged monsoon likely affected recoveries during the September quarter, concerns of an acute slowdown over the next few months raise concerns on medium-term asset quality performance. The overhang of wholesale lending book, consistent rating downgrades and increasing defaults continue to make analyst cautious on the sector.
Non-banks are showing clear divergence with select NBFCs/HFCs enjoying a rally in bond markets while others (mostly smaller entities) are struggling for accessing funds even at elevated costs. In this backdrop, the recent impetus by RBI-government to improve liquidity for NBFCs has provided a breather to smaller retail players towards the end of the quarter.
Says M. B. Mahesh, Analyst at Kotak Securities, "While select players like HDFC Ltd, Bajaj Finance, Mahindra Finance and Chola have significantly increased their funding from mutual funds, many others are running down their borrowings from mutual funds. The first set of NBFCs will hence deliver stable/marginal NIM improvement in 2QFY20. Debt markets also seem comfortable in funding government-owned HFCs like LICHF and Canfin Homes. There is a sharp decline in funding costs for HDFC and LICHF in the past one year; this helps these HFCs to compete with banks in retail business wherein decline in repo rate will lead significant reduction in home loan rates under the new floating rate loan regime."
The RBI and the government have announced several measures to boost liquidity for NBFCs. According to select small NBFCs, these measures have improved access to funding, largely from public banks in the past two-three weeks. As such, these benefits will augur well for their liquidity over the next one to two months mostly in the festive seasons. Concerns on funding challenges from private banks and debt markets continue and funding costs remain elevated. Most NBFCs prefer to run down short-term borrowings/commerical papers and retain high cash on the balance sheet.
Access to funds tempered growth for NBFCs in 1QFY20 (Mahindra and Chola delivered 6 per cent quarter-on-quarter (QoQ) loan growth while Shriram City Union Fin-ance and Shriram Trans-port Finance reported around 2 per cent QoQ).
"We, however, expect loan growth to weaken across-the-board in 2QFY20E, irrespective of their access to funds. Most NBFCs will deliver 3 per cent to 4 per cent QoQ loan growth. The only exception is Bajaj Finance that tends to benefit from its aggressive expansion exercise (even as consumer durable sales have been weak); even for Bajaj, QoQ loan growth will moderate to 6 per cent from 11 per cent in 1QFY20," added Mahesh.
Bhaskar Basu, Equity Analyst at Jefferies India said, "Developer NPAs have increased across most NBFCs/HFCs in 1Q. Stress is widespread, but initial defaults are from mid-tier developers. Consolidation is taking place. Larger developers have managed stress better so far.”
Centrum Broking said, "For asset financers (AFCs), we see a lower asset under management growth at 17 per cent year on year (versus 19.8 per cent sequentially) owing to the auto slowdown. Asset quality for Mahindra & Mahindra Financial Services in terms of provisions may come in lower, thus impacting overall net profit for asset finance companies.”