Non-bank lenders could see decelerating AUM growth in Q2

Mumbai: Non-banking financial companies (NBFCs) and housing finance companies (HFCs) set to start announcing their quarterly results this week are expected to report a further deceleration in assets under management (AUM) owing to lower disbursals and higher repayments.

Asset quality for most players is expected to remain stable due to the Supreme Court induced moratorium while elevated provisions could be a common feature among these entities. Analysts said they will be keenly watching out for commentary on collection efficiency, performance of stage 1 and 2 asset pools and likely restructuring under the Covid-19 framework.

“The September quarter has been a period of steady normalisation in collection and disbursements as against the massive disruption seen in the June quarter due to the lockdown,” said Alpesh Mehta, analyst, Motilal Oswal. “While complete normalisation is sometime away, initial signs are encouraging. Companies’ stance on restructuring, strategies to counter tail risk and demand scenario in the ensuing festive season are the key factors to watch out for.”

Collection efficiencies have ranged from 70-80% across financiers, down from 90%-plus levels before the Covid-19 outbreak. Disbursements have shown a similar trend, with home loans showing strong recovery and vehicle loans disbursements at 50% of the January levels.

“NBFCs and HFCs within our coverage are expected to have registered a sequential uptick in disbursals in the September quarter,” said Darpin Shah, institutional research analyst, HDFC Securities. “Despite a fall in their cost of funds, we expect these companies to register stable to declining NIMs (net interest margins) on account of higher liquidity maintained by them. Operating efficiency metrics are likely to deteriorate sequentially.”

The ongoing NBFC crisis and the Covid-19 pandemic have affected the performance of most lenders. The overall slowdown and contraction in the economy are likely to keep pressure on growth and asset quality.

Bajaj Finance, which recently released its pro forma numbers, indicated tepid loan growth, with new loans booked during the July-September quarter falling to 3.6 million from 6.5 million a year ago. Similarly, unlisted HDB Financial Services, a subsidiary of HDFC Bank, had a quarter of sub-par asset quality, deceleration in loan growth, slump in profit and decline in net interest income.

“We expect asset financiers and housing financiers under our coverage to report 3% y-o-y and 7% y-on-y AUM growth, respectively,” ICICI securities said in a report. “NIMs may gain support from lower funding cost but will be offset by interest reversal on stress recognition and lower fee income and direct assignment income.”

The brokerage has estimated an earnings decline of nearly 25% year-on-year for asset financiers and housing financiers.