Finance companies with better risk management and recovery systems are better placed than banks to take advantage of an upturn in credit demand.
Vibha Batra, co-head of ICRA, said finance companies, especially those in the retail space, faced less concerns over asset quality. The tightening of regulatory framework has also given strength to finance companies.
V Vaidyanathan, executive chairman of Capital First, a finance company focused on MSME lending, said steps such as hiking standard assets provisions to 0.4 per cent, moving towards 90-day NPA recognition by June 2017 and higher capital adequacy norms (15 per cent) have lent strength to balance sheet. With this, NBFCs were in a position to address huge credit demand at the grassroots.
According to the financial stability report (FSR), released by the Reserve Bank of India early this week, public sector banks could face more pressure on the bad loans that put non-banking finance companies (NBFCs) on a better footing.
The PSBs are facing the highest stress levels and it is because of this that their performance has also been under pressure. In fact, the FSR pointed out that the NBFCs are performing better than the banks.
"While the regulatory norms for the NBFC sector are sought to be closer to those applicable to the banks, the performance of this sector and return on assets seems to be much better as compared to those of banks," said the FSR report.
The report also added that the aggregated balance sheet of NBFC sector expanded by 15.5 per cent on a year-on-year basis in March 2016. On the asset quality level also, their performance improved with GNPAs declining to 4.6 per cent in March 2016 from 5.1 per cent in September 2015.
Vibha Batra, co-head of ICRA, said finance companies, especially those in the retail space, faced less concerns over asset quality. The tightening of regulatory framework has also given strength to finance companies.
V Vaidyanathan, executive chairman of Capital First, a finance company focused on MSME lending, said steps such as hiking standard assets provisions to 0.4 per cent, moving towards 90-day NPA recognition by June 2017 and higher capital adequacy norms (15 per cent) have lent strength to balance sheet. With this, NBFCs were in a position to address huge credit demand at the grassroots.
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The PSBs are facing the highest stress levels and it is because of this that their performance has also been under pressure. In fact, the FSR pointed out that the NBFCs are performing better than the banks.
"While the regulatory norms for the NBFC sector are sought to be closer to those applicable to the banks, the performance of this sector and return on assets seems to be much better as compared to those of banks," said the FSR report.
The report also added that the aggregated balance sheet of NBFC sector expanded by 15.5 per cent on a year-on-year basis in March 2016. On the asset quality level also, their performance improved with GNPAs declining to 4.6 per cent in March 2016 from 5.1 per cent in September 2015.