Ind-Ra upgrades outlook on NBFCs and HFCs to ‘neutral’ from ‘improving’

India Ratings and Research (Ind-Ra) has upgraded its outlook on non-banking finance companies (NBFCs) and housing finance companies (HFCs) to ‘neutral’ from ‘improving’ on better collection efficiencies and asset growth in the sector. However, it said that liability management is key for managing margins and loan growth for NBFCs and HFCs. It also said with the onset of normalcy in lending, the on-balance sheet liquidity would also normalise, negating the impact of the rising cost of funds, thereby protecting margins to a certain extent.

In the mid-year outlook on the sector, Ind-Ra said that a lower credit cost for 2HFY23 would aid profitability during the fiscal. Higher inflationary pressure on borrowers and interest rates may deter demand normalisation in the near term but the festive season demand could support the baseline credit offtake. On the securitisation front, a major source of balance sheet management for lenders, the agency said it has witnessed a strong asset performance in the first half of FY23, which leads it to give a 'stable' rating outlook for outstanding transactions in the second half of the fiscal. It expects securitisation volumes to reach pre-COVID levels, subject to stabilised market sentiments.

It further said the non-bank regulatory framework has become increasingly aligned with that of banks with the introduction of the prompt corrective action framework and the revision of non-performing asset (NPA) recognition norms, and that this will further aid transparency in disclosure standards and reporting alignment with banks. The agency expects NBFCs (including HFCs) to report around 14 per cent growth in AUM (assets under management) in FY23.