Growth in the NBFC sector halved in October-March FY19, and still remains impacted.
Non-banking finance companies such as Bajaj Finance, Sundaram Finance and Manappuram Finance posted strong growth in the past quarter, even as the sector was still negotiating its worst crisis in a decade and some like Reliance Capital and Dewan Housing missed payment commitments.
Sound management practices and the absence of financial engineering helped these outperformers navigate the crisis and grow bigger, said, industry trackers. While the cost of funds increased for most NBFCs with banks becoming cautious about lending to the sector, these companies saw financing costs ease even.
NBFCs in the consumer, SME, gold loan, commercial vehicle finance and microfinance segments have been relatively less affected by the liquidity crisis in the sector. For the companies that give loans against gold, the asset-liability maturity levels are positive. They also have low leverage, pricing power and highly liquid collateral, which would ensure easy access to bond markets as well as bank funding.
“Growth and asset quality are expected to be different across asset classes,” said Crisil in a report.
“The unsecured loans and gold loans businesses are unlikely to witness any material impact.”
Growth in the NBFC sector halved in October-March FY19, and still remains impacted as access to funding has become challenging and they are caught up in managing liquidity. At the same time, unsecured loans including personal loans, consumer durable loans and business loans, as well as two-wheeler finance grew 30 percent, and the vehicle finance business expanded 18 percent.
Meanwhile, in the first quarter of this fiscal year, Bajaj Finance reported profit growth of 23 percent, Sundaram Finance posted a 12 percent increase and Cholamandalam Investment, 10 percent. Mahindra Finance reported a 66 percent fall in profit and Indiabulls a 24 percent decline.
While some of the NBFCs had less trouble raising funds, others had to look beyond the traditional routes of mutual funds and banks for funds in the past nine months.
They are working at tapping foreign money and some are even trying to tap wealthy individuals.
They have also reduced dependence on short-term funding like commercial papers, as investors sought large discounts. To improve liquidity, many of them have sold down loans. In fiscal 2019, such sell-downs by NBFCs double to about ? 1 lakh crore. Banks have bought many of these loans sold by NBFCs.
NBFCs are working towards deleveraging, with JM Financial, Edelweiss, IIFL, DHFL, Piramal and Indiabulls Housing raising fresh equity and selling down non-core portfolios, as they sought to improve their asset-liability ratios.
“Retail-NBFC asset-liability maturities are generally characterised by positive cumulative mismatches in the near-term bucket of less than one year,” said AM Karthik, the sector head of financial sector ratings at Icra.