However, strong competition from banks and rising interest rates will ensure that growth will not revert to pre-pandemic levels and force them to focus on the riskier high-yield segment for growth.
The disruption in business and economic activity amid Covid-19 had restricted credit growth for NBFCs from 2% to 4% in the financial years ending March 2020 and March 2021, and to 5% in FY2022. But better economic prospects due to revival in credit is expected to help NBFCs lift demand by 11% to 12% in the fiscal ending March 2023, to a four-year high – around Rs 13 lakh crore.
The rating agency expects vehicle finance to be close to 50% NBFC Loans found credit to lead to 11% to 13% growth this fiscal year from 3% to 4% in the last two years. CRISIL said that within that segment, used vehicle financing, with its higher returns, will see higher growth and increase the volume of NBFCs in vehicle finance, CRISIL said.
The rating agency expects strong demand from the infrastructure sector as well as fleet replacement demand and focus on last-mile connectivity to boost sales of commercial vehicles, while the demand and demand for newly launched car and utility vehicle will boost sales. However, banks will continue to dominate the new vehicle segment due to lower funding costs.
Ajit Veloni, Director, CRISIL Rating Unsecured loans which include high-yield personal and consumer durable loans to individuals and business loans to small and medium enterprises (SMEs), will be the only segment to touch the pre-Covid growth rate of 20% to 22%.
Such loans form the second largest pie in the NBFC asset book and will be supported by rising retail spending in consumer durables, travel and other personal consumption activities, while business loans will benefit from macroeconomic tailwinds.
LAPs and Gold Loans are also expected to touch a growth of 10% to 12%, although competition will maintain the high growth rate in this sector as well.
“Even as the growth touches double digits again, it will be below pre-pandemic levels. In fact, AUM had registered a 3-year compound annual growth rate (CAGR) of close to 20% during FY19. Intense competition from banks and rising interest rate scenario will limit the competitiveness of NBFCs in certain areas, making them focussed. High yielding segments for growth,” said Krishnan SitaramanDeputy Chief Rating Officer, CRISIL.
Wholesale finance by NBFCs in sectors such as real estate will continue to decline as these segments tap alternative investment funds and NBFC risk aversion.