NBFCs retail credit growth seen at 16-18% in FY18: Icra

Mumbai, Dec 27 (PTI) The retail credit growth fornon-banking financial companies is likely to be moderate at16-18 per cent in the current fiscal, helped by some assetclasses, such as SME credit, says a report.NBFC retail credit grew by nearly 16 per centyear-on-year to Rs 6.6 trillion as of September, against 15per cent in FY17 and 19 per cent in FY16."The overall NBFC credit growth is expected to berelatively moderate at about 16-18 per cent for the currentfiscal be driven by some key target asset classes, includingSME credit, which is expected to witness some uptick in thesecond half of the fiscal, as the new taxation regime slowlystabilises," Icra said in a report today.NBFCs share in the unsecured consumer credit is likelyto expand as more entities venture into this segment forproduct diversification and higher business yields.The share of these loans increased to 8 per cent oftotal NBFC retail credit in September 2017 vis-a-vis 4.5 percent in March 2015.The rating agency said the share of unsecured loansare expected to increase further going forward, with increasein fintech based lending, growth in SME and small businesscredit, and as entities diversify to asset classes includingpersonal loans and consumer durable loans.The sector is likely to witness an increase in the90+ day delinquencies which would settle at about 5-5.5 percent by March 2018, from 5 per cent as of September 2017.Pressure is expected to largely emanate from the loanagainst property (LAP) and SME segment, which account forabout 25 per cent of the retail NBFC credit, it said.The rating agency also said that higher credit costbecause of the increase in delinquencies and transition to the90+ day NPA recognition norm and the moderation in operatingefficiency as growth slowed, would continue to exert pressureon net profitability of NBFCs.The report further said housing finance companies(HFCs) will require around Rs 9,000-16,000 crore of externalcapital to grow at a CAGR of 20-22 per cent for the next threeyears with internal capital generation levels of 15-16 percent.Most of the incremental capital requirement of HFCswould be from small HFCs, including those operating in theaffordable housing space.The moderation in cost of funds for HFCs continued inthe second half of FY18 with an overall seven basis pointsdecline in the cost of funds for all HFCs in the periodvis-a-vis a 10 basis points decline in the first quarter."Going forward the ability of the HFCs to bring downtheir cost further will be dependent on the share ofborrowings which are maturing and will be reprised at lowerrates," the report said.The report expects a 5-10 basis points reduction in profitability for HFCs in FY18 and report good return on equity of 17-19 per cent for the current fiscal.

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