Para banks would face tighter liquidity, higher funding costs and consequently lower net interest margins (NIMs) in FY20 as they overhaul their balance sheets toward longer-term borrowings, IndiaRatings & Research said in its outlook report on Tuesday.
The Fitch-owned rating company expects wholesale financing NBFCs, especially those lending to real estate, micro and small enterprises (MSMEs) and large corporates, to expand slower than the retail financing NBFCs.
Ind-Ra expects NBFC NIMs to shrink to 6.2% in FY20 from its estimates of 6.7% in the current fiscal, and lower than the 7% NIM recorded last fiscal. As NBFCs move toward longer-term borrowings, the impact on their margins due to a higher cost of funds will be more severe. Ind-Ra expects a 16-basis point impact on margins if the current level of short-term funding is reduced by 5 percentage points by long-term funds at a higher cost. One basis point is 0.01 percentage point.
Delinquencies could rise for wholesale lenders, especially from segments such as loan against property (LAP) and retail-focused areas such as affordable housing, as real estate prices have tightened to make underwriting difficult. Ind-Ra delinquencies in affordable housing inched up to 2% in FY18 from 1.4% when compared to a year ago.
“Many people have jumped into the affordable housing bandwagon because of the credit linked subsidy scheme of the government. However, there is no real assessment or monitoring in these schemes and the collections are also not focused. We expect a slowdown in the credit growth for this scheme,” said Karan Gupta, associate director, financial institutions at Ind-Ra. The rating agency expects housing finance NSE -1.13 % companies to face a contraction in NIMs, particularly in the large-ticket housing segment.
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Source: economictimes.indiatimes.com