New Delhi, Jan 3 : The assets under management (AUM) of the small finance banks (SFBs) are expected to register a marginal improvement in the growth rate to around 20 percent in FY2022, rating agency IRCA said Today.

The growth rate would be two percent higher compared to the growth rate of 18 percent witnessed in FY2021, though the same would be lower compared to the compound annual growth rate (CAGR) of around 30 percent during FY2016-FY2020, the agency said.

However, IRCA has maintained its cautious stance as the recent surge in COVID-19 infections could play spoilsport and impact the recovery in growth.

The challenge posed by the second wave of the COVID-19 pandemic led to a deterioration in the asset quality metrics in H1 FY2022, nevertheless, some recovery is expected by the end of FY2022, it said.

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, it observed.

Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA, said, “With the second wave of the pandemic impacting disbursements in Q1 FY2022, the AUM growth rate declined in H1 FY2022. The industry is estimated to have reported an annualised growth rate of 7-8 percent in H1 FY2022.”

“Nevertheless, since disbursements have started picking up, we expect the pace of growth to improve in H2 FY2022, pushing the full-year AUM growth to around 20 percent, though the same would be subject to no major impact from the recent rise in COVID-19 infections,” he added.(UNI)