NBFC outlook still dim: Crisil

MUMBAI, April 21: Credit Rating Information Services of India Ltd (Crisil) expects non-banking finance companies (NBFCs) to show a considera...

int(3)

MUMBAI, April 21: Credit Rating Information Services of India Ltd (Crisil) expects non-banking finance companies (NBFCs) to show a considerable decline in profits for fiscal year 1997-98 and continues to maintain a negative rating outlook for the sector.

“Credit risk profile of the NBFCs is likely to be heightened by the continuing difficult business conditions and impact of recent regulatory changes regarding deposit acceptance and provisioning for non-performing assets,” Crisil said. It has already downgraded a host of NBFCs to default category.

Most NBFCs have seen a marked slowdown in disbursement levels due to a combination of sluggish demand for credit, funding constraints and increased competition from international players and banks. “The profitability of the sector has been under strain due to declining spreads, higher delinquency levels and stricter provisioning requirements,” Crisil said.

Story continues below this ad

The slowdown in the economy has affected offtake of credit for vehicles as well as financing to smalland medium corporates. Recent RBI’s guidelines on deposit acceptance have also restricted NBFCs’ ability to raise deposits.

In fact, most NBFCs are preoccupied with reducing deposits and balance sheet sizes rather than pursuing growth, particularly since alternate sources of funding like equity, bank finance and debentures are not forthcoming easily, Crisil stated.

Crisil said rationalisation of the yields due to competitive pressures has had a depressing effect on spreads. The slowdown in disbursements has also affected the profitability of firms with significant proportion of leased assets.

“The decline in disbursements would result in higher depreciation costs as a proportion of income, which would depress profitability significantly,” it said. Delinquency levels have increased across business segments in Crisil rated companies necessitating increased provisioning requirements.

Story continues below this ad

This, together with the new provisioning norms, would adversely affect profitability, Crisil said.

Liquidity positionof most NBFCs has been impaired by the necessity to reduce deposits to be in line with the recent RBI guidelines, increased delinquency levels and the difficulty in obtaining substitute funding.

Despite the decrease in disbursements, the liquidity position has not improved, due to the prevalent asset liability mismatches and decline in deposit renewal rates, Crisil said.