India’s Leading BFSI and FinTech Companies 2022

19 Both GNPA and NNPA ratios of NBFCs witnessed a decline in FY21 as the asset classification was at standstill consequent to the pandemic. The resolution of a few accounts in the infrastructure sector also helped in improving asset quality during FY21. However, asset quality of NBFCs witnessed some deterioration in FY22 (upto September 2021) due to the higher delinquency ratio during the second wave of the pandemic. Asset quality of NBFCs witnesses slight deterioration in FY22 5.6 6.4 6.3 6.0 6.8 3.3 2.9 3.2 2.7 3.0 2.0 4.0 6.0 8.0 FY18 FY19 FY20 FY21 Sep-22 % GNPA NNPA Source: RBI NBFC credit growth remained sluggish during FY21 and H2 FY22 due to the pandemic-led disruption. However, the timely policy support provided by the government and the RBI avoided a downfall in the credit growth. Industry segment continued to remain the highest recipient of credit by NBFCs followed by retail loans and services. Key Policy Measures Policy Measures Implications Scale-based regulatory framework for NBFCs This is expected to help in increasing transparency by the way of greater disclosures and improved governance standards. Special Liquidity Scheme of ` 300 bn Addressed short-term liquidity concerns. Lowering of secured debt limit to ` 2 mn from ` 5 mn for NBFCs under SARFAESI Act This will improve recoveries from small businesses. Linking of dividend pay-out by NBFCs to their capital adequacy and NNPA and a ceiling on the maximum dividend pay-out ratio specified. Challenges • NBFCs with lower ratings are finding it difficult to raise capital/resources from the market due to lower consumer confidence. • With digital lending gathering pace in NBFC segment, prevention of cyber frauds is a key challenge faced by the NBFCs • NBFCs are often burdened with multiple compliances. Complicated compliances are one of the key challenges faced by NBFCs. • Absence of statutory recovery tool is another challenge faced by Indian NBFCs. Access to debt recovery tribunal or bringing NBFCs under the SARFAESI Act can help address this concern. Outlook • The unwinding of policy measures is expected to increase delinquencies for NBFCs, in turn impacting their asset quality. Du & Bradstreet