NBFC Sector – Trends, Regulatory Framework and Way Forward

CARE Ratings has published a report on NBFC Sector – Trends, Regulatory Framework and Way Forward.
Summary
Due to subdued economic environment, the last two years have been challenging for the NBFC sector with moderation in rate of asset growth, rising delinquencies resulting in higher provisioning thereby impacting profitability. However, the comfortable capital adequacy, shift towards secured lending, lower ALM risk have helped the sector absorb cyclical stress on asset quality and profitability. The NBFC sector has been gaining systemic importance in the recent years with NBFC assets growing steadily from 10.7% of banking assets in 2009 to 14.3% of banking assets in 2014. The recent revised regulatory framework for NBFCs by RBI focuses on strengthening the structural profile of sector, reducing regulatory arbitrage between banks and NBFCs wherein focus is more on safeguarding of the depositors money and increasing regulatory compliance for large size NBFCs.
Accordingly, as per CARE Ratings’ estimates, Gross NPA level may be in the range of 5.8%-6.1% by 2018 from around 3.4%* as on 2014 and the profitability of NBFCs would see an impact of 35 to 45 bps due to revised guidelines. However, CARE Ratings believes that current profitability levels can absorb impact of additional provisioning requirements. Also, the three year transition period will help reduce the impact. Further the current capital adequacy level is comfortable. CARE Ratings perceives revised regulations to be positive for the NBFC sector. The regulations will make the NBFC sector structurally stronger, increase transparency and improve their ability to withstand asset quality shocks in the long run.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s