Said Krishnan Sitaraman, Senior Director, Crisil Ratings, “Of the 40% of loan book under moratorium, around half, is expected to come out of moratorium by March 2021 which will result in incremental slippages. Refinance for the segment has also slowed down in the current environment, thus further aggravating matters. In this context, the Rs 25,000 crore support fund for the real estate sector announced by the government could provide a breather for stuck projects, though the timeliness of this remains critical. Given the headwinds being faced by the sector, the incremental funding in these segments is expected to come mainly from newer sources such as alternate investment funds”.

Further, loans against property (LAP) portfolios (~9%) have been in the red for the past few years, with the NPAs inching up ~1.75 times to ~3.3% as on September 30, 2019 from ~1.9% as on March 31, 2016. Given current funding challenges, reduction in balance transfer, together with cash flow problems affecting self-employed borrowers, could also lead to an amplification in underlying stress.

If it’s any comfort, delinquency in the traditional retail loan portfolios of non-banks look more manageable.

Home loans, the largest chunk (~34%, ~Rs 8 lakh crores as on March 31, 2019), continue to demonstrate why this segment has been considered among the safest asset classes. NPAs inched up by a mere 20 bps in the first half of fiscal 2020. But delinquencies are expected to rise from here for three reasons: the overall economic slowdown, an increase in self-employed portfolios, and rise in share of affordable housing loans in the overall credit pie. That said, they would still remain comfortable and relatively lower than other asset classes.

In vehicle financing, the second-largest segment (~21%, ~ Rs 5 lakh crores as on March 31, 2019), 90+ dpd has increased ~70 basis points from March 2019 to September 2019. These are mainly in the commercial vehicles, cars and utility vehicles portfolios, where there is a high co-relation of delinquencies with the economic environment. To be sure, the performance of the players varies based on the segment of operation. Nevertheless, it is pertinent to note that non-banks in vehicle finance have weathered many such cycles in the past and have re-oriented their collection infrastructure based on experience. So, while there could still be some slippages, NPAs would still be lower than the peak witnessed 4-5 fiscals earlier (~10%).

Said Rahul Malik, Associate Director, Crisil Ratings, “Nevertheless, with investor confidence about non-banks still a key determinant for funding, asset quality performance will be the differentiator in the near to medium term.”