November 2021

From Chief Ratings Officer’s Desk

The GoI provided succour to the economy through the Central excise duty cut on Motor Spirit (MS) and High Speed Diesel (MSD) by Rs 5 and Rs 10 respectively, to boost the consumption recovery, amid the rising Covid-19 vaccine coverage. While lowering prices will increase their consumption in FY2022, the revenue foregone will be modest. The positive impact on inflation of excise cut will stave off early monetary policy normalisation. The MPC may not change its stance to neutral before the February ’22 Monetary Policy review, thus allowing economic recovery to strengthen. Fuel cuts will benefit the end consumers, who will have more disposable income to spend after the festive season.

We also examine the average collection efficiency (CE) of ICRA-rated securitised retail pools originated by NBFCs and HFCs which has shown a considerable improvement during Q2 FY2022 following decrease in Covid-19 infections and higher vaccination. The CE of most asset classes was healthy, almost to pre-second wave levels, and the same is likely to continue. The 90+ delinquencies too have seen a decline though it is still higher than pre-Covid level. The performance of ICRA-rated securitisation is expected to remain stable benefitting from the tight; it will also be helped by the tightening of pool selection criteria.

Major private airports in India witnessed a 12% growth in the non-aeronautical revenues during FY2017-FY2021. However due to pandemic impact, the share of aeronautical revenues in the overall revenue mix declined, with the non-aeronautical revenue share increased to 57% in FY2021. The non-aeronautical yield per passenger at major private airports is still very low as compared to major private airports in the world, implying a significant room for improvement. Covid-19 and the second wave subsequently has hit the airports infra industry hard; and recovery will be delayed. The outlook for the sector continues to be negative.

Lastly we examine the impact of the disbursements and CEs of HFCs in Q1 FY2022due to the second wave of the pandemic. HFCs registered nil sequential growth in the on-book portfolio during this period, though the Y-o-Y growth was better than the growth in FY2021. The CE also declined in Q1 FY2022, though it started bouncing back by the end of Q1 and improved further in Q2 FY2022. Healthy demand, increased economic activity as well as vaccination are likely to support disbursements and CE in FY2022. ICRA has estimated an 8-10% growth. However, asset quality and declining CEs in Q1 FY2022 would remain a concern- both had weakened sharply. This will impact credit costs and subdue profitability in FY2022. Nevertheless, ICRA expects HFCs to maintain healthy liquidity in the near-term.

The issue concludes with the regular features: monthly rating updates, upcoming ICRA events, and news features related to the company.

I hope you will find this newsletter useful and interesting.

Best Regards

K. Ravichandran
Chief Ratings Officer, ICRA Ltd.

Gaurav Mashalkar

Assistant Vice President, Structured Finance, ICRA

Views on Gold Loan Securitisation

Prashant Vashisht

Vice President & Co Group Head – Corporate Sector Ratings, ICRA

Views on Indian Fertiliser Industry

ICRA Research Updates
November 2021
Non-Bank Finance Companies: Scale-based regulations positive from long-term perspective; cost of compliance to increase
Indian Renewable Energy Sector: Elevated cell & module price levels internationally pose execution headwinds and cost pressures for IPPs & OEMs in the near term
Excise Duty Cut on Fuels: GoI’s FY2022 revenue loss from excise cut on fuels pegged at Rs. 440 billion; states may forego similar amount of VAT
Indian Power Sector: Electricity demand growth revised upwards to 8.0 -8.5% for FY2022 from 6.0% earlier
ICRA in News
November 2021
Financial Express | November 17, 2021

Rising guarantees a source of potential state fiscal stress

Mint | November 16, 2021

WPI inflation hits 5-month high due to rise in oil prices

Business Standard | November 15, 2021

Bank-owned brokerages to show up to 20% profit growth in FY22: Icra

Bloomberg Quint | November 12, 2021

States To Face Revenue Loss Of Rs 44,000 Crore After Fuel Tax Cuts

The Economic Times | November 11, 2021

Evergrande saga may shorten the length of the ongoing steel upcycle: ICRA

Upcoming Events
Indian Airport Infrastructure: From turbulence to clear skies?

Aditi Nayar

Chief Economist, ICRA

Excise and VAT cuts to soften inflation, stave off early policy normalisation

The average international crude oil price, in Indian basket terms, had surged to US$82.0/bbl in Oct 2021 from the low of US$20.5/barrel in Apr 2020, and recorded a 30% rise relative to US$63.3/bbl in April 2021, on the back of buoyant global demand and restrained supply. In view of the rising crude oil prices, the Government of India announced a welcome and much awaited cut in the Road and Infrastructure Cess (RIC) component of Central excise duty, by Rs. 5/litre on Motor Spirit (MS) and Rs. 10/litre on High Speed Diesel Oil w.e.f. Nov 4, 2021. Factoring in the impact of the excise duty cut and our expectations for mobility and the economic recovery with the rising Covid-19 vaccine coverage, we forecast the year-on-year (YoY) rise in the consumption of MS and HSD in FY2022 at 14% and 8%, respectively, on the low base of FY2021.

Abhishek Dafria

Vice President & Group Head, Structured Finance, ICRA

NBFC collections for securitised pools across asset classes remain steady; likely to remain healthy as possibility of another Covid wave wanes

The average collection efficiency in ICRA-rated securitised retail pools originated by Non-Banking Finance Companies (NBFC)s and Housing Finance Companies (HFC)s improved significantly during Q2 FY2022 on the back of continued decline in fresh Covid-19 infections during June to October 2021 period, a high share of vaccinated population and uninterrupted operational activities of these entities. Collection efficiency (including overdue collection) for the most affected asset classes, viz microfinance and SME loans, reached close to 100% for September 2021 from a low of 80% seen in May 2021. Collections in the housing loan segment continued to remain healthy during Q2 FY2022, post swiftly recovering to pre-second wave level in June 2021.

Rajeshwar Burla

Vice President & Group Head, Corporate Sector Ratings, ICRA

Indian airports lag significantly when compared to their global counterparts on nonaeronautical yields

The non-aeronautical revenue share for major private airports stood at 57% in FY2021. As against this, the revenue mix at Airport Authority of India (AAI) operated airports is dominated by aeronautical revenues which constitutes 78% of revenue mix as focus is less on non-aero yield due to low passenger throughput at majority of tier II and tier III airports, lower international traffic and relatively low spend by the travellers. The non-aeronautical yield per passenger at major private airports is low as compared to major private airports in the world. The average non-aero yield per pax for major private airports in India stood at US$ 3.8 (even lower at US$ 2.9 if AAI operated airports are included) during FY2018 – FY2020 (FY2021 not considered due to Covid impact) compared to yield per pax ranging between US$ 5.7 to US$ 16.4 for major airports across the world. Given the evolving consumer spending behaviour, Indian airports still have a significant room for improvement. The aeronautical revenues are regulated in nature, where returns are capped; therefore, to maximise the return on capital employed, airport operators need to improve their non-aero yields.

Sachin Sachdeva

Vice President & Sector Head, Financial Sector Ratings, ICRA

HFCs’ growth expected to revive in FY2022 despite headwinds in Q1 FY2022; weak asset quality to keep profitability subdued

The on-book portfolio of the non-banking financial companies-housing finance companies (NBFC-HFC) sector is expected to grow at 8-10% in FY2022. Growth will be driven by the improvement in demand for individual home loans (HLs). Although the collection efficiency (CE) declined because of the second wave of Covid-19 infections in Q1 FY2022, it started bouncing back by the end of June 2021 and is expected to have improved further in Q2 FY2022. The challenge posed by the second wave led to a deterioration in the asset quality metrics in Q1 FY2022; nevertheless, some recovery is expected by the end of FY2022. Though the portfolio growth is expected to drive an improvement in revenue, the expected elevated credit costs are likely to keep the profitability subdued in FY2022.

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