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Business Economy

Business recovery to gain traction in FY2023: ICRA

Business recovery to gain traction in FY2023: ICRA

New Delhi, Jan 20 (UNI) As rise in infections pose key downside risk for near-term performance of Retail-NBFCs, business recovery will gain traction in FY2023, rating agency ICRA said on Thursday.

Stage-3 is expected to remain range bound in the current fiscal and improve in the next fiscal, it said, adding profitability will improve partially in the current fiscal and reach near pre-Covid levels by FY2023.

In view of the muted H1 performance, ICRA revised the Assets under management (AUM) growth outlook for the current fiscal to 5-7 per cent from 8-10 per cent and said growth outlook would be exposed to downside risk in case of significant disruptions caused by the new wave of infections in Q4 FY2022.

'At present, while the infection rates remain high, the operational disruptions have been quite limited.

Measures taken by the regulator to strengthen the structural, regulatory and supervisory framework for the sector, especially the tighter non-performing advances (NPA) recognition or upgradation norms, could lead to increased focus on internal controls, which can, in turn also impact sectoral growth,' the report said.

“Apart from the various regulatory changes over the last 3-4 months (other key regulations include- scale-based regulations, prompt corrective action framework for NBFCs etc) and a muted H1FY2022, we note that some of the key segments of Retail-NBFCs, especially vehicle finance, are faced with supply-side constraints, which could pull-down growth vis a vis our expectation, even if the demand remains less impacted by the new wave of infections.

AUM growth is expected to revive to 8-10 per cent in FY2023,” A M Karthik, Vice President, Financial Sector Ratings, ICRA Limited, said.

“The increase in the restructured book has been on expected lines as it doubled over the March 2021 level and stood at 4.5 per cent of the AUM. Of the total outstanding restructured book of Retail-NBFCs, about 70 per cent was done in H1 FY2022. As restructuring in the current fiscal was largely done in Q2 FY2022, generally with a moratorium of 3-6 months and, as the commencement of repayments from these accounts, in Q3 or Q4 FY2022, coincides with the new wave of infections, any significant disruption would impact the asset quality of the sector,” Karthik said.

The agency expected the credit costs in FY2022 to be lower than last year’s level in the base case and said competition from banks and the likely increase in the borrowing rates could impact the margin of the NFBCs.

“Assuming no adverse disruptions on account of new covid-19 infections, ICRA expects the return on average managed assets (RoMA) of Retail-NBFCs to improve in the current fiscal and reach pre-covid levels of 2.6-2.7 per cent in FY2023 as credit costs are expected to reduce from the peak witnessed in FY2021,” Karthik added.


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