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nbfc: Infrastructure finance by banks, NBFC-IFC remains sluggish in Q1 FY2022: Study

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Total infrastructure credit by banks and NBFC-Infrastructure Finance Companies (NBFC-IFCs) remained sluggish in the first quarter of the current fiscal due to the disruptions caused by the second wave of the COVID-19 pandemic, Ratings said in a report. However, with the government’s focus on the infrastructure sector, the demand for infrastructure credit is likely to improve over the medium term, the report said.

“Given the disruption caused by the second wave of the pandemic, total infrastructure credit (banks and NBFC-IFCs) remained sluggish in Q1 FY2022, with infrastructure focused loan books remaining flat on quarter-on-quarter (q-o-q) basis for both NBFC-IFCs as well as banks,” the rating agency said.

The total infrastructure credit by banks and NBFC-IFCs is estimated at Rs 24.7 lakh crore as on March 31, 2021, registering a sluggish growth of 10 per cent, it said, adding that given the disruption caused by the second wave of the pandemic, it has remained stable as on June 30, 2021.

The share of IFCs in the total infrastructure credit continues to increase and stood at 54 per cent as on March 31, 2021, while the share of banks slid to 46 per cent from about 61 per cent five years ago, the report said.

Icra’s Vice President and Sector Head (Financial Sector Ratings) Manushree Saggar said the central government has set a target of infrastructure investment of over Rs 111 lakh crore under the National Infrastructure Pipeline (NIP) over FY2020-FY2025.

While COVID-19-induced disruptions has made it a daunting and improbable target, the government’s intent of continued focus on the infrastructure sector augurs well for growth prospects for lenders to the infrastructure sector, especially in the backdrop of recovery in balance sheet strength of NBFC-IFCs, she said.

“While growth in the total infrastructure credit in H1 FY2022 is likely to remain tepid, medium-term prospects are strong with growth expected to exceed nine-year CAGR of 11 per cent,” Saggar added.

The stress in the infrastructure sector due to COVID-induced disruptions has been low, and NBFC-IFCs have also demonstrated relative resilience during the COVID-19 pandemic, the report said.

The liquidity profiles of NBFC-IFCs have improved with reduced dependence upon short term borrowings and higher share of longer tenor borrowings in incremental fund raising, it said.

Overall, IFCs, especially public IFCs, have reverted to a healthy profitability trajectory with decline in share of non-performing loans and decline in cost of borrowings.

The agency believes that the improving asset quality trajectory for NBFC-IFCs is likely to continue.

Courtesy – economictimes.indiatimes.com

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