“Adverse conditions are more fraught than headwinds,” said the Crisil senior director. Krishnan Sitharaman Told. Strong balance sheets with high capitalization and high provisioning buffers, along with a reduction in asset-quality concerns, have put NBFCs on a solid footing to capitalize on credit demand, he added.
The NBFC registered 7% AUM growth in the last financial year.
The growth will be mainly driven by the household loan (the largest segment for non-bank lenders contributing 40-45% to regional AUM) and vehicle finance, the second largest segment with 20-25% of AUM). While these two segments are expected to see 13-15% growth each, the unsecured loan segment (contributing 8-10% of AUM) is set to grow at 20-22% in the next financial year. The rating company is optimistic on the future outlook for the sector despite these non-bank lenders facing intense competition from banks, especially in the home loan segment, while higher interest rates put pressure on their margins and reduce their competitiveness. does limit
“Rising rates will increase the borrowing cost of NBFCs and reduce their competitiveness vis-a-vis banks, which have access to low-cost funds,” Sitharaman said. Their borrowing costs are likely to increase by 100-120 basis points this fiscal, while banks will continue to provide liquidity in the form of loans to the sector, he said.
The rating company expects large NBFCs to diversify into high-yielding sectors such as unsecured loans, used vehicle loans and secured SME loans. They can go for co-lending partnership with emerging NBFCs focusing on specific asset classes, especially unsecured loans.
“The portfolio is being restructured to ensure better risk-adjusted returns,” said Ajit Veloni, director at the rating company.