Funding likely to be a key concern for NBFCs but growth drivers intact, says ICRA

The growth drivers for NBFCs remain intact and expect them to grow at 20 percent in FY19 but funding could be a key concern due to lower rate of acquaintance, said AM Karthik, ICRA.

The non-banking finance companies (NBFCs) are in focus after an ICRA report said that they could face heightened pricing pressure from H2FY19 if rates remain high.

The report said that retail-focused NBFCs could require about Rs 3.8-4 lakh crore fresh debt for FY19 and they expect the annual borrowing cost for NBFCs to increase by 45 basis points in FY19.

However, the net impact on cost of funds could vary from company to company depending upon their ability to pass on the cost increase to their borrowers, said Karthik.

Assuming that yields remain at current levels, the net profits across NBFCs would come down by 35-40 basis points in FY19, he added.

The NBFCs have a better flexibility to pass on cost to their borrowers because they cater to different segments but in spaces where they compete with private sector banks, they could face pricing pressure.

The key funding sources for NBFCs are banks, MFs and Insurance companies. Exposure of banks to the NBFC sector has reduced in the last couple of years, said Karthik.