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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