NBFCs May See Moderate Growth In AUM Over Next Two Fiscals, Says Crisil
The unsecured loans and microfinance segments, accounting for about 23% of the overall AUM of the industry, are expected to be impacted the most, Crisil said.
Assets under management of non-banking financial companies are set to grow at a moderate 15-17% in the next two financial years, given heightened regulatory environment and lower GDP projections, Crisil Ratings said.
"We are seeing a reduction in credit growth aligned with the slowing of the economy. In FY24, GDP grew by 8.2%, whereas NBFCs AUM grew by 23%, so this fiscal it will come down further," said Krishnan Sitaraman, chief ratings officer at CRISIL Ratings.
India's GDP grew 5.4% in the second quarter, down from 6.7% in the April-June period, according to data from the National Statistical Office. The growth was also below economists’ forecast of 6.5% and the Reserve Bank of India's estimate of 7%.
While the rating agency expects moderation in credit growth of NBFCs, it is still expected to be above the decadal average of 14%.
Rising concerns around household indebtedness and asset quality risks will have a bearing on growth strategies in specific retail asset segments such as microfinance and unsecured loans, it said.
"AUM growth of NBFCs in the two largest traditional segments—home and vehicle loan—will continue to be driven by fundamentals with limited impact of the above factors."
The unsecured loans and microfinance segments, accounting for about 23% of the overall assets under management of the industry, are expected to be impacted the most, it said.
Recent regulatory pronouncements have brought to fore the criticality of compliance and operational risk management, Sitaraman said.
Unsecured lending clocked rapid growth in the past three fiscals at a CAGR of about 45%, becoming the third-largest component of the overall NBFC AUM. "But that pace is seen moderating to 15-16% in this and in the next fiscal."
With their robust balance sheets and sound liquidity, NBFCs are well-positioned to capitalise on the demand for retail loans, it said. While tailwinds from economic growth will aid NBFCs, "business models will need nimble manoeuvring to manage challenges."
