"The key target segment of NBFCs - the self-employed - is likely to have been impacted more, as a sizable share of their business is based on cash transactions, which were affected by shortage in currency following demonetisation," Icra's senior vice president and group head (financial sector ratings) Rohit Inamdar said in a report here.
NBFC's business has also been affected by the moderation in disbursements with limited cash availability, especially microfinance and gold-backed lending.
"The NBFCs are also expected to focus more on collections than on incremental business," Icra said.
It said competitive pressure for retail-focussed NBFCs is likely to intensify as banks are increasingly focusing on retail segment to offset weak corporate credit growth.
More From This Section
"Further, increase in bank deposit base post demonetisation and steep reduction in lending rates is expected to result in migration of some large-ticket and relatively better quality NBFC borrowers to banks," Inamdar said.
The extent of impact in each asset class, however, has varied.
"With not being allowed to accept repayments in old currency, shortage of valid currency among borrowers, and disruption in borrowers' regular business, especially the cash-intensive ones, resulted in a dip in collection efficiency across lenders," it said.
The performance of the affected asset classes going ahead will depend primarily on the pace of restoration of currency supply in the system and the degree of impact of demonetisation on the borrower business volumes and cash flows, the report said.