India's credit growth is beginning to show signs of revival after several quarters of muted expansion, according to Ashish Mehrotra, chief executive officer of Northern Arc Capital Ltd.
However, a massive gap between credit demand and supply remains a key challenge, particularly for the micro, small and medium enterprises, consumers and rural finance, he told NDTV Profit on the sidelines of Motilal Oswal's 11th Ideation Conference.
"We're fairly bullish as things settle down, we're looking at 20–25% year-on-year growth," said Mehrotra, signaling optimism about the upcoming financial year.
Despite this optimism, Mehrotra underscored the structural mismatch in India's lending ecosystem. The MSME sector alone, he added, had a demand exceeding Rs 100 lakh crore, but only a fraction of it was currently being met.
"MSMEs and smaller entrepreneurs need access to credit. Right now, only 30–35% of them have access to formal credit, and that becomes a big thing," Mehrotra pointed out.
With 20% of India's credit flowing through non-banking financial companies, the sector plays a critical role in bridging this gap, Mehrotra highlighted. He emphasised Northern Arc's focus on thematic opportunities to expand performing credit, especially as new cohorts of loans are now performing significantly better.
A key positive trend has emerged in microfinance institutions, which were hit hard in previous cycles. "We're beginning to see improvement in the MFI space over the last few months. It may take a few more months, but starting next fiscal, we may see balance sheet growth," Mehrotra said.
One of the standout advantages for Northern Arc is its net interest margin of over 9%, which Mehrotra described as "pretty healthy". What further differentiates the firm is its "free franchise", a unique offering compared to any other NBFC.
To capitalise on the evolving credit landscape, Northern Arc is expanding its financial offerings, the CEO said. "We're closing our emerging business fund and have launched the financial services fund."
The revival in credit growth is encouraging, but the demand-supply gap in the MSME and rural finance segments remains vast, Mehrotra added.
Watch the full conversation here:
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