ICRA has revised the growth outlook for NBFCs; expects another strong performance in FY24
- IBEF
- July 21, 2023
ICRA has revised upward the growth outlook for the current financial year for the retail loans of Non-Banking Financial Companies (NBFC-Retail) and Housing Finance Companies (HFC-Retail), which account for the majority of the overall sector.
The rating agency stated in a report that growth in the unsecured loans segment, which consists of personal and consumption loans, unsecured small enterprise loans, and microfinance loans, would remain strong. The NBFC-Retail asset under management (AUM), estimated at roughly US$ 170 billion (Rs. 14 lakh crore) as of March 2023, is expected to grow at a higher pace of 18-20% in FY24 compared to the previously estimated level of 12-14%.
In contrast, it stated that the HFC-Retail AUM, estimated at roughly US$ 85 billion (Rs. 7 lakh crore) as of March 2023, and constituting home loans (HL) and loans against property (LAP), is expected to grow at a relatively moderate rate of 12-14% during the same period (although higher than the previous estimate of 11-13% due to increased competition from banks).
The total sector AUM, which consists of retail and other wholesale loans (including infrastructure loans), which stood at about US$ 490 billion (Rs. 40 lakh crore) as of March 2023, is estimated to grow at about 13-15% in FY24 with a growth expectation of 10-12% in the infrastructure and other wholesale loans of NBFCs and HFCs, the report said.
The NBFC-Retail AUM increased at a healthy rate of roughly 26% in the previous fiscal year, supported by an improvement in all loan categories but notably by unsecured loans, which increased by 44%, the company reported. According to the report, unsecured loans expanded at a compounded annual growth rate (CAGR) of 27% over the five years that ended in FY23, while secured loans grew at a rate of 11% during that time. It also predicted that unsecured loans would continue to be the main growth driver during the current fiscal year.
As per the report, the increase in unsecured credit can also be partially linked to entities’ shift from a product-focused approach to one that is borrower-focused. It added that cross-selling of various loan products is being used to strengthen the hold on the franchise by increasing borrower engagement. The organisation said that over time, the evolution of credit bureaus and improved understanding of borrower-level cash flows have helped NBFCs fine-tune their underwriting models.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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