Non-performing assets (NPAs), measured as 90+ days past due (dpd) for non-banks (comprising non-banking finance companies (NBFC) and housing finance companies, but excluding government-owned NBFCs), are expected to continue to rise by another 30 to 150 basis points (bps) by March 2020, depending on the asset class. This is on the back of 20 to 150 bps increase seen in the first half of fiscal 2020.
Amidst the challenging economic environment, even the traditional retail segments – such as vehicle and home loans, which constitute over half the non-banks’ assets under management (AUM) – have seen NPAs inching up.
But it is not the traditional segments where the material concerns lie. It is the wholesale loan book where more significant slippages are expected to manifest as portfolios come out of moratorium.
To be sure, real estate and structured credit comprise only ~16% of the AUM of non-banks (~Rs 3.8 lakh crores as on March 31, 2019). But these segments are experiencing heightened headwinds as the financial flexibility of many underlying operating companies in the structured debt space and real estate developers have been impacted due to overall slowdown in business. Moreover, a major chunk of the loan book is under moratorium. That means NPAs could jump when loans come out of it.
Reported NPA in real estate segment is estimated to have increased to 3.3% as on September 30, 2019, from 1.8% as on March 2019. About 40% of the book (including lease rental discounting (LRD)) was still under moratorium as on September 30, 2019. As the book under moratorium and the LRD books have low delinquencies, to understand the true level of stress in the real estate loan book, CRISIL has considered the NPAs on the base of the book out of moratorium (and excluding LRD). This results in NPAs standing at ~10% as on September 30, 2019; almost thrice the reported NPAs.