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The perspective for real estate oriented non-banks, which include non-banking financial companies as well as housing finance companies, continues to be pessimistic in light of the asset quality pressures that are expected to emerge in the short to medium term, as well as the expectation that growth will be subdued.
Asset quality pressures
According to a statement released by Fitch Ratings on Friday, there is a possibility that moderate stresses would resume being placed on the asset quality of Indian banks as of 2023.
However, thanks to the improved performance in the near term, banks should have more flexibility to manoeuvre in the face of stress while still retaining their existing financial measures.
According to a statement released by the regulatory agency, Indian banks have profited from the delayed acknowledgement of pandemic-driven stress that was sanctioned by regulatory authorities. This has resulted in a decrease in the ratio of impaired loans as well as a recovery in earnings which is being pushed by lower loan asset impairments. In the short term, support for domestic banks comes from India’s economic recovery as well as regulatory tolerance. The company’s financial performance has shown signs of considerable improvement.
Medium term and the muted growth
It is anticipated that the real estate asset under management (AUM) of non-banks would continue to decrease by 5-10% in 2022 before levelling off in the following year. This follows a degrowth of 10% in 2021 that was recorded for this AUM category.In recent years, the performance of non-banks, which include non-banking financial companies and housing finance companies, has been hampered by a number of challenges. These challenges have been caused by the fact that these entities have struggled to raise funds and have had problems with the quality of their assets. national credit rating organisation Icra Ratings. The prognosis for real estate-oriented non-banks is expected to remain unfavourable due to asset quality challenges in the short to medium term and the forecast of sluggish growth in the coming years.The assets under management (AUM) related to real estate held by non-bank financial institutions decreased by 17.64 percent, going from Rs. 3.4 lakh crore in March 2019 to Rs. 2.8 lakh crore in March 2021.
It is anticipated that it would reach equilibrium in the fiscal year 2023 (a decline of 0–5%) “according to the agency.
Samriddhi Chowdhary, the company’s Vice President as well as Sector Head (Financial Sector Ratings), stated that non-banks have witnessed a tremendous slowdown in growth since the second half of the fiscal year 2019 as a direct result of the liquidity crisis, and as a result, they have moderated their disbursements.
As a result of a lengthy period of risk aversion on the part of investors and other stakeholders, the impact was felt far more strongly by wholesale financiers who had significant real estate exposures than it was by their retail counterparts.
AUM of non-banks contracted
As of March 2021, the real estate assets under management (AUM) of non-banks (non-banking financial companies and housing finance companies) decreased to Rs. 2.8 trillion from Rs. 3.4 trillion as of March 2019. This represents a decrease of 17.64 percent. ICRA, a ratings’ agency, projects that it will decrease even further by between 5 and 10 percent over the current fiscal year.According to the ratings’ agency, it is anticipated that the situation will become more stable in FY23 (0-5 percent degrowth).The success of non-banks over the past few years has been hampered by a number of problems as entities have had to deal with fund-raising obstacles and issues around asset quality. The non-banking sector, on the other hand, had experienced a growth period in the real estate sector up until the end of the first half of the fiscal year 2019 (September 2018), which has been defined by adequate access to capital, significant investor interest, and a consistent demand forecast.Since the second half of the fiscal year 2019, non-banks have seen a major slowdown in growth as a result of the liquidity crisis, which has led to a moderation in their disbursements. As a result of a lengthy period of risk aversion on the part of investors and other stakeholders, the impact was felt more strongly by wholesale financiers who had significant exposures to the real estate market in comparison to their retail counterparts.
Conclusion
The regulatory body observed that perhaps the operation of the non-banks in recent times has been hampered by a number of obstacles, as the organisations have struggled with concerns relating to the quality of their assets and difficulties in raising funds. The non-banking sector, on the other hand, had experienced a growth period in the real estate sector up until the end of the first half of the fiscal year 2019 (September 2018), which has been defined by accessible access to money, significant investor interest, and a consistent demand forecast.As a result of a lengthy period of risk aversion on the part of investors and other stakeholders, the impact was felt far more strongly by wholesale financiers who had significant real estate exposures than it was by their retail counterparts.
