Growth and asset quality pressures persist although some signs of easing

Growth and asset quality pressures persist although some signs of easing

nbfc

Retail credit of NBFCs stood at Rs. 4.0 trillion and registered a y-o-y growth of 11.1% as December 31, 2014 against a y-o-y growth of 9.1% as on March 31, 2014. Higher growth follows a revival in the gold loan segment, which grew on a y-o-y basis by 2.8% as on December 31, 2014 against a sharp y-o-y de-growth of 16% as on March 31, 2014. Credit to the Mortgage and microfinance segments also witness a pickup in growth, registering a y-o-y growth of 31% and 43% in December 2014 respectively.

ICRA expects retail NBFC credit growth to improve to 14-17% in FY16 from 11-13% in FY14 and 9% in FY13. ICRA expects profitability to be impacted by RBI regulations requiring NBFCs to migrate to a minimum NPA recognition norm of 150+ days from 180+ days, which would increase gross NPA and credit provisions. ICRA estimates the one-time hit on earnings owing to this transition to be 20-30 bps, which could lower ROEs to below 10% in FY 16

Profitability of retail focused NBFCs are expected to remain under pressure in FY-16, as ROEs could drop to under 10% (from 10.8% in 9M-FY15 and 12.6% in FY14) on account of the one-time impact as NBFCs adopt a tighter minimum NPA recognition policy.
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