Non-banking financial companies (NBFCs), key players in the financial spectrum, have witnessed a steady deterioration in asset quality in the past five years. Gross non-performing assets (GNPA) ratio for NBFCs increased to five per cent at end-March 2017 from 2.9 per cent at end-March 2012, the Reserve Bank of India (RBI) has said.
In absolute terms, bad loans of NBFCs work out to around Rs 74,230 crore as the advances by the sector were Rs 14.84 lakh crore. “The deterioration in asset quality could partly be attributed to the change in NPA recognition norms. Notwithstanding the recent deterioration, their asset quality remained better than that of banks,” said an RBI study on NBFCs.
On the other hand, the NPA ratio of banks increased to 10.21 per cent in June 2017 from 8.42 per cent in June 2016.
According to the RBI, return on assets (RoA) of NBFCs declined from 2013 onwards in tandem with the asset quality deterioration in the financial system. “Compared to banks, however, NBFCs reported a fairly higher RoA. The capital to risk-weighted assets ratio (CRAR) of NBFCs has declined in recent years although it was higher than the prescribed regulatory level of 15 per cent, symbolising the soundness of the sector,” the RBI study said.
An assessment of the recent financial performance of NBFCs suggests that they are emerging as an important source of credit to micro and small enterprises and infrastructure, the RBI said. “Although the capital position of NBFC sector remains strong, the gradual deterioration in their asset quality points to the need for greater monitoring,” the RBI said.
The growth of financial technology (fintech) platforms presage even greater scope and opportunities for the NBFC sector. New players in the field of P2P, business-to-business (B2B) and business-to-consumers (B2C) lending offer novel opportunities for NBFCs to evolve further and emerge as an increasingly important component of India’s financial landscape.