The overall infrastructure credit (including banks and non-banks) registered an annualised growth of 8% in 9M FY2023 aided by a sharp pickup in Q3 FY2023, bucking the trend of the previous 18 months. Non-banking financial companies – infrastructure finance companies (NBFC-IFCs) grew in line with the system and maintained their market share at around 54% as on December 31, 2022, credit rating agency ICRA said.
The increased demand has coincided with the period during which NBFC-IFCs witnessed receding asset quality pressure, led by a few stressed asset resolutions/recoveries, sizeable write-offs, and curtailed incremental slippages.
The stage 3% eased to 3.4% as on March 31, 2022, from the peak of 6.8% as on March 31, 2018. The reported gross stage 3% is expected to moderate further by 10-30 basis points (bps) in FY2024, supported by limited slippages and growth in the book.
Manushree Saggar, vice president and sector head – financial sector ratings, ICRA, said, “NBFC-IFCs are expected to benefit from the credit demand generated by the central government’s ambitious targets under the National Infrastructure Pipeline (NIP) and ICRA expects them to grow by 10-12% in FY2024. This, coupled with limited incremental slippages, is expected to lead to these NBFC-IFCs reporting multi-year low asset quality indicators (lowest in last six years) in FY2023 and FY2024.”
“ICRA has revised the industry outlook for NBFC-IFCs to Positive from Stable, reflecting its expectation that the enhanced performance witnessed in FY2023 will continue in FY2024 as well, given the improvement in the solvency profile, calibrated loan book growth in the near term and better asset quality and earnings profile.”
The central government has set a target of infrastructure investment of over Rs. 111 lakh crore under the NIP and the pace of infrastructure investment is planned to be twice the past level.
The capitalisation and solvency levels of NBFC-IFCs have witnessed a respite in the recent past and the ability of these entities to grow in a calibrated manner without significantly reducing the capital cushion over the levels prescribed by the regulator will remain imperative.
Also, the availability of long-term funding matching the underlying asset tenures remains imperative for asset liability maturity management.
With the revival in business growth and lower credit costs, NBFC-IFCs have demonstrated a healthy profitability trajectory with their post-tax return on assets (RoMA) estimated at 2.2% for 9M FY2023. ICRA expects the RoMA to improve further to 2.2-2.4% in FY2024, ICRA added.
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