RBI Report on Trends: NBFC sector remains resilient

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Non-banking finance companies sector remains resilient with strong capital buffers and their balancesheet growth gained traction in the first half of 2020-21, said a report by the Reserve Bank of India.

“The consolidated balance sheet of NBFCs decelerated in 2019-20 due to stagnant growth in loans and advances beset with a challenging macroeconomic environment and weak demand compounded by risk aversion. In H1:2020-21, however, balance sheet growth of NBFCs gained traction. Although asset quality deteriorated marginally, the NBFC sector remains resilient with strong capital buffers,” said the RBI report.

As on September end 2020, the total liabilities or assets of NBFCs stood at ₹35,85,854 crore compared to ₹33,89,267 crore compared to end March 2020.

“…in 2020-21 (up to September), balance sheet growth of NBFCs, especially that of NBFCs-ND-SI (non-deposit taking systemically important NBFCs), gained traction due to pick-up in loans and advances and base effect,” the report said.

The report further noted that the impact was relatively higher on NBFCs since they were unable to function during the initial phase of lockdown.

“After the IL&FS episode, the NBFC sector was inching towards normalcy in 2019- 20 when Covid-19 affected their operations,” it further said.

About 26.6 per cent of the total customers of NBFCs availed the loan moratorium as on August 31, 2020 with MSMEs availing of the scheme the most.

The report also warned that due to the economic damage inflicted by Covid-19 across segments, the asset quality of NBFCs may worsen even in the retail loans category, which is generally considered a safe haven with the lowest share of stressed assets.

Housing finance companies

Similarly, housing finance companies also faced challenges due to Covid-19, which could lead to slippages and higher provisioning.

“HFCs faced challenges due to delays in completion of housing projects, cost overruns due to uncertainty around reverse-migration of labourers and delayed investments by buyers in the affordable housing sector as incomes shrank and jobs were lost. Going forward, the sector may need to brace up for large slippages of loan assets and higher provisioning,” the report said.

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