The assets under management (AUM) of small finance banks (SFBs) are expected to marginally register a growth of 20 per cent in the financial year 2020-21 compared with 18 per cent growth witnessed in the previous financial year, according to a report.
However, the AUM growth will be lower compared to the compound annual growth rate (CAGR) of around 30 per cent during FY 2016-20, rating agency ICRA Ratings said in a report on Monday.
The agency's Vice-President and Sector Head (Financial Sector Ratings) Sachin Sachdeva said the AUM growth of SFBs declined during H1 FY 2022 after the disbursements got impacted in Q1 FY 2022 due to the second wave of the pandemic.
The industry is estimated to have reported an annualised growth rate of 7-8 per cent in H1 FY2022.
"Nevertheless, since disbursements have started picking up, we expect the pace of growth to improve in H2 FY 2022, pushing the full-year AUM growth to around 20 per cent, though the same would be subject to no major impact from the recent rise in coronavirus infections," he said.
Amid the second wave of the pandemic, SFBs witnessed a decline in collections and, hence weakening of the quality metrics with reported gross non-performing assets (GNPAs) of 6.4 per cent as of September 30, 2021, the report said.
On an overall basis, the rating agency expects some reduction in gross non-performing assets (GNPA) percentage in H2 FY2022.
The reported GNPA percentage as of March 31, 2022, is expected to be higher by 70-80 basis points (bps) compared to the level as of March 31, 2021, the report said.
The rating agency expects SFBs to maintain healthy liquidity, especially given the uncertainty in the industry.
Sachdeva said SFBs witnessed a reduction in its net interest margins in FY2021, given the challenging operating environment and interest income reversal on delinquent accounts, its operating profitability was supported by the reduction in the operating expenses ratio.
Nevertheless, the elevated credit cost impacted the return indicators in FY2021, he said.
"Credit costs are expected to remain elevated in FY2022 as well, which would keep the profitability subdued," he added.
