Business models to evolve for non-banks amid regulatory changes: Ind-Ra

India Ratings and Ratings (Ind-Ra) on Thursday maintained a stable outlook on retail non-banking finance company (NBFC) and housing finance company sectors for FY22.

It said the system liquidity has improved considerably while a majority of large non-banks strengthened their capital buffers and the sector has started witnessing disbursement growth.

But the agency continues to maintain a negative outlook on wholesale NBFC sector for FY22, factoring in significant asset quality challenges and added regulatory restrictions on different products lines and increased competition from banks.

Ind-Ra said the wide differential among NBFCs' funding costs is likely to push the sector to consolidate, especially in the sectors with a thin margin profile and limited product differentiation.

FY21 saw a strong regulatory support through the infusion of liquidity which aided the liquidity risk converting into a solvency risk. However, NBFCs need to plan for managing liquidity as and when these measures are rolled back.

Securitisation and co-lending model will get further traction as the funding requirement of the sector overshoots the saving mobilisation rate, said Ind-Ra.

Non-banks have seen a moderation of funding cost by 80 to 120 basis points for higher-rated issuers, leading to relief in providing covid-related provision, along with some savings in operating costs.

However, funding cost in FY22 will be a function of system liquidity and operating cost will normalise to pre-Covid levels, leading to a moderation in pre-provision buffers to absorb higher-than-envisaged credit loss.

Ind-Ra expects NBFCs to grow by 9.5 per cent year-on-year in FY22 while growth for housing finance compes will be around 10 per cent -- higher than the expectations of 4 to 5 per cent and 6.5 per cent respectively for FY21.

( With inputs from ANI )