nbfc: NBFC loan books expected to see fastest growth in 3 years: crisis

Non-bank financial companies (NBFCs) are expected to grow their loan portfolios at the fastest rate in three years, driven by growth in auto loans, unsecured consumer loans and loans against property (LAPs) thanks to better macroeconomic conditions, said the rating agency Crisil. .

However, stiff competition from banks and rising interest rates will ensure that growth does not return to pre-pandemic levels and force them to focus on the risky high yield segment for growth.

Disruption to business and economic activity amid Covid-19 limited loan growth for NBFCs to between 2% and 4% in the fiscal year ending March 2020 and March 2021, and to 5% in in fiscal 2022. But a better economic outlook due to a pick-up in lending demand is expected to help NBFCs post 11%-12% in fiscal year ending March 2023, a four-year high – at around Rs 13 lakh crore.

The ratings agency expects vehicle finance, which hogs nearly 50% of NBFC’s loan pie, to lead growth 11%-13% this fiscal, down from 3%-4 % over the past two years. Within this segment, used vehicle finance, with its higher yields, will experience higher growth and drive NBFC’s volume in vehicle finance, Crisil said.

The rating agency expects strong demand from the infrastructure sector as well as fleet replacement demand and a focus on last-mile connectivity to support commercial vehicle sales, while pent-up demand and new launches will boost car and utility vehicle sales. However, banks will remain dominant in the new vehicle segment due to their lower financing costs.

Ajit Velonie, director of Crisil Ratings, said unsecured lending, which includes high-yield sustainable personal and consumer loans to individuals and commercial loans to small and medium-sized enterprises (SMEs), will be the only segment to be affected. growth of 20% to 22% pre-Covid rate.

These loans are the second largest pie in NBFC’s asset portfolio and will be supported by increased retail spending on consumer durables, travel and other personal consumption activities, while loans to companies will benefit from favorable macroeconomic winds.

LAP and gold loans are also expected to grow 10% to 12%, although the competition is also maintaining higher growth in this space.

“Even if growth hits double digits again, it will be below pre-pandemic levels. Indeed, AUM had recorded a 3-year compound annual growth rate (CAGR) of nearly 20% until in FY2019. The intense competition from banks and the scenario of rising interest rates will limit the competitiveness of NBFCs in certain segments, leading them to focus on high yield segments for growth,” said Krishnan Sitaraman, Deputy Director of Ratings, Crisil.

Wholesale funding by NBFCs to sectors like real estate will continue to decline as these segments rely on alternative investment funds and NBFCs remain risk averse.

Colin L. Johnson