Despite the proposed stricter RBI guidelines for the sector, major non-banking finance companies (NBFCs) have a stable rating outlook in the current year due to their robust pre-provision operating profits, India Ratings said in a report.
"We have maintained a stable outlook on major NBFCs in 2013, as their robust pre-provision operating profit (PPOP) provides a strong cushion against rising credit costs and elevated funding costs, while there will be only limited impact of proposed regulatory changes on these companies," India Ratings Director for Financial Institutions Ehsan Syed said here.
He also said the possible monetary further easing of interest rates and uptick in economic growth are likely to ease cyclical pressures in the current year.
The rating agency, however, pointed out that asset quality pressure in commercial vehicle and construction equipment would continue in the current year.
"The continued harsh operating environment around some key asset classes, including heavy and medium commercial vehicles (a key segment for many major NBFCs) and construction equipment, and building pressure points in the fast-growing light commercial vehicles will keep asset quality under pressure," the report noted.
It also said bad loans are likely to increase in the current year to 2.7-3% against 2.1% reported in FY12. Similarly, the rating agency expects return on equity to be around 2.3-2.5% from the 2.7% level reported in FY12.
Referring to recent draft guidelines on NBFCs, the agency said if implemented, these would be positive for the sector.
"NBFCs' high dependence on banks could increase in 2013 on account of the new 30% sectoral caps on mutual funds' debt investments (another key channel of funding for NBFCs).
"Despite the softening interest rates, funding costs will remain elevated from the exclusion of bank loans to NBFCs from priority sector lending and restrictions on bilateral assignments," the report said.
It also said net interest margin is estimated to drop to 5.9% in 2013 against 6.1% in FY12. The rating agency also noted that capital buffer is adequate for the NBFCs.
