After subdued growth in FY21 and FY22, NBFCs are seen reversing the trend in FY23, growing by 11-12 per cent on the back of improving demand for credit, especially retail and MSME loans, as economic activity picks up.
“FY23 looks promising with AUM at industry level estimated to grow in double-digits,” said Rajesh Sharma, MD of Capri Global Capital, adding that the year will augur well overall for the sector.
The second half of 2022 saw an increase in credit demand by by growth in real estate, consistent government spending on infrastructure, and good rainfall supporting agriculture and allied sectors.
The late arrival of the monsoon in September is a blessing as it promises a bumper winter crop and that will bode well for the rural economy — already starting to reflect in the robust sales of two-wheelers and tractors in October and November, said Umesh Revankar, Executive Vice Chairman of Shriram Finance.
2022 also brought with it changes in the form of scale-based regulations for NBFCs, revised definition of MSMEs, and stringent guidelines on fintech and co-lending partnerships. As a result, the landscape evolved from traditional balance sheet lending to cash flow-based loans for small businesses, and from income-based to behavior-based lending for retail loans, industry participants said.
In turn, NBFCs aided by fintechs, turned their focus on lending to underserved segments such as individual entrepreneurs, vehicle operators and small businesses in addition to retail segments such as housing, gold and personal loans.
Even as inflationary concerns persist, competition from banks intensifies and interest rates continue to rise, NBFCs are hopeful of higher growth going into 2023, with a focus on cost efficiencies and accelerated technology adaptation to improve margins and customer experience.
“With NBFCs investing in digital strategy and collaborating with fintechs, we see the credit demand being addressed by traditional methods coupled with leveraging technology and innovation,”said George Alexander Muthoot, MD of Muthoot Finance, adding that the advent of 5G will further help NBFcs provide hyper-personalised offerings and solutions.
As such, NBFCs with stronger business models, capital adequacy, underwriting capabilities and focus on digital strategy will continue to perform better and grow as the sector becomes systematically significant due to increasing interconnectedness, participants said.
Co-lending partnerships — especially with segment-focused entities — will help drive growth and also aid NBFCs in improving asset quality and on-boarding more customers while deploying less capital, said Shachindra Nath, Vice Chairman and MD of U GRO Capital.
“This year, the total volume in the co-lending space is expected to be around ₹25,000-30,000 crore. We anticipate that co-lending will exceed ₹1 lakh crore in the next two years.”