iifl-logo-icon 1

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

sidebar image

ICRA : Growth slows for Infrastructure Finance NBFCs; favorable asset quality and profitability

21 Apr 2022 , 03:11 PM

ICRA estimates the infrastructure credit growth to have slowed down in 9MFY2022 with infrastructure-focused loan books witnessing moderate annualised growth for both NBFC-IFCs and banks. Earlier, recovery had followed the first wave of the Covid-19 pandemic, whereby infrastructure credit (banks and IFCs) clocked a 10% growth in FY2021 despite having slowed down in H1FY2021 (1% growth). While the tepidness in recent years was primarily due to the stagnation in banking sector credit to the infrastructure segment, the trend in 9MFY2022 was characterised by the moderation in the portfolio growth of IFCs as well. Earlier, in FY2021, IFCs’ aggregate portfolio continued to grow at a strong pace led by disbursements related to the liquidity package for distribution companies (discos) with PFC and REC as lending partners.

The aggregate NBFC-IFC credit book stood at Rs. 13.8 lakh crore as on December 31, 2021, registering a sequential growth of 6% (annualised) in 9M FY2022, compared to the much stronger growth of 16% in FY2021 and 14% in FY2020. The Public-IFC category continues to account for majority share (94%) with an aggregate loan book of Rs. 13.0 lakh crore as on December 31, 2021. This is followed by Private-IFCs (3.3%) with an aggregate loan book of Rs. 0.45 lakh crore and IDFs (2.3%).

On the medium-term outlook, Ms. Manushree Saggar, Vice President, Financial Sector Ratings, ICRA, says The growth prospects for NBFC-IFCs are strong as demand for infrastructure credit is expected to gather pace amid the Government’s resolve to focus on the infrastructure sector to revive economic growth. Consequently, NBFC-IFCs loan books are expected to grow by 10-12% in FY2023.” 

In terms of sectoral breakup, concentration towards the power sector remains higher for IFCs with a share of ~61% of the portfolio as on December 31, 2021 compared to the 52% share of the power sector in banks’ exposure to the infrastructure segment. This is because of certain NBFC-IFCs, which are specialised institutions solely focused on the power sector. Going forward, sectors such as renewable energy, Transmission & Distribution (T&D) and roads would continue to receive higher disbursements as has been the case during the past five years.
The asset quality trajectory over the past few years indicates receding asset quality pressures for NBFC-IFCs. Led by a few stressed assets resolutions/recoveries, sizeable write-offs, curtailed incremental slippages, and the optical impact of a growing asset base, the Stage 3% has eased to 4.1% (5.8% – ex IRFC) as on December 31, 2021 from the peak level of 7.3% (9.0% – ex. IRFC) as on March 31, 2018. Aggregate Stage 2%, however, remains volatile. This is primarily driven by state sector customers, with instances of delays in debt servicing from time to time, though further slippages to harder buckets have been controlled.

“With the improving asset quality and increased provision cover against NPAs, the aggregate solvency indicator (Net Stage 3/Net Worth) for the sector has improved considerably over the past three years to the strongest level since March 2016. Thus, with the balance sheets recuperating, the sector is relatively better placed for growth. ICRA expects the reported stage 3% to decline by further 25-30 bps supported by pending resolutions and book growth,” added Mr. Deep Inder Singh, Vice President, Financial Sector Ratings.

NBFC-IFCs, especially Public-IFCs, have reverted to a healthy profitability trajectory with the decline in the share of non-performing loans and in the cost of borrowings. This is driving healthy internal capital generation and supporting the capitalisation level. As a result, the capitalisation level remains adequate with a downward bias in the gearing level in recent years, which places the industry well for medium-term growth. Nonetheless, the capitalisation and solvency levels of IFCs have witnessed a respite only in the recent past. Hence, the ability of these entities to grow in a calibrated manner without significantly reducing the cushion in the capital over the levels prescribed by the regulator will remain imperative. Prudent capitalisation is a key mitigant against the risks in NBFC-IFCs portfolios arising out of sectoral and credit concentration and growth above 10-12% may warrant external capital raise to maintain prudent leverage. The asset-liability maturity profiles have improved as reliance on short-term borrowings has reduced and longer-tenor borrowings have been raised in the recent past amid favourable systemic rates.

“Given the intense competition from Public-IFCs, IDFs and banks, ICRA expects the profitability of Private-IFCs (excluding IDFs) to remain lower than its public sector peers and IDFs, until these entities can ramp up and sustain the non-interest income levels. Overall, ICRA expects post-tax RoA of 2.0-2.2% for FY2023 for NBFC-IFCs, supported by stable NIMs and moderation in credit cost,” Ms. Saggar concluded.

The author of this article is Ms. Manushree Saggar, Vice President, Financial Sector Ratings, ICRA

The views and opinions expressed are not of IIFL Securities, indiainfoline.com

Related Tags

  • ICRA Ltd
  • IRFC
  • Manushree Saggar
  • NBFC
sidebar mobile

BLOGS AND PERSONAL FINANCE

Read More
Knowledge Centerplus
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Knowledge Centerplus

Follow us on

facebooktwitterrssyoutubeinstagramlinkedin

2024, IIFL Securities Ltd. All Rights Reserved

ATTENTION INVESTORS
  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

RISK DISCLOSURE ON DERIVATIVES
  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

plus
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.