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Mumbai Asset quality of state-owned NBFCs was much better than their private sector peers, with gross NPA ratio at 2.5 per cent compared with a much higher 6.1 per cent for private sector NBFCs in H1 FY24.
Further, the asset quality of private NBFCs’ industrial advances remained high at 12.5 per cent, constituting 21.6 per cent of overall gross NPAs for the NBFC sector, as per a report by CARE Ratings.
“Among major sectors, the personal loans segment, which had grown rapidly in the last few years, continues to have the lowest GNPA ratio in September 2023 at 3.6 per cent,” the report said, adding that a shift in the segmental distribution of credit can be seen with a tilt towards retail.
Large NBFCs (upper layer NBFCs) registered higher credit growth of 21.9 per cent on year, and better gross NPA ratio of 3.4 per cent, compared to the overall NBFC sector.
Segmental growth
Over 9,000 NBFCs are currently registered with the RBI. Aggregate credit extended by NBFCs grew 20.8 per cent y-o-y as of September 2023, compared with 19.4 per cent for commercial banks.
Loans to industry lost market share from 40.6 per cent in FY19 to 36.1 per cent in H1FY24, but continued to constitute the largest segment, largely financed by PSU NBFCs, which saw such loans growing by 18.3 per cent on year.
Industrial loans were followed by personal loans which had a market share of 31.8 per cent, services loans of 14.6 per cent and agriculture loans of 1.9 per cent.
Personal loans grew at a CAGR of 33 per cent for the past four years to ₹11.9-lakh crore as of September 2023. Personal loan growth exceeded the overall credit offtake of around 15 per cent for the NBFC sector.
Consumer loans accounted for 44.7 per cent of the incremental retail loan growth in the year to September 2023. Unsecured loans grew at a CAGR of 20.7 per cent, with their share rising from 24.6 per cent in March 2020 to 31.9 per cent in September 2023.
“However, this growth rate is likely to moderate given RBI’s action of increasing the risk weights on consumer loans which would increase the capital required for such loans,” CARE said.
NBFC - Investment and Credit Company (NBFC-ICC) and NBFC-Infrastructure Finance Company (NBFC-IFC) continued to be the largest segments, accounting for around 95 per cent of all NBFCs in terms of size.
NBFC-ICCs’ share of retail credit was 90.1 per cent whereas NBFC-Microfinance (NBFC-MFI) accounted for the balance 9.9 per cent. NBFC-IFCs had a share of 75.1 per cent in gross industrial credit, with the top ten sectors accounting for 83 per cent of their large loans.
Funding sources
Over 75 per cent of NBFCs’ resources mobilised from banks were secured and over 85 per cent were by NBFCs rated ‘AA-’ and above. Large NBFCs with asset size above ₹25,000 crore accounted for nearly 80 per cent of bank lending to NBFCs, which stood at ₹14.2 lakh crore as of September 2023, a rise of 26.3 per cent on year.
The share of banks’ NBFC exposure to aggregate credit rose from 8.9 per cent in September 2022 to 9.4 per cent in September 2023.
As momentum of bank lending to NBFCs moderates, the higher cost of funds will drive highly rated NBFCs towards the capital markets, whereas dependence of mid and smaller-sized NBFCs on banks is likely to remain high despite an expected increase of 25-30 bps in cost of funds, the report said.
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