NBFC biz to return to normal, FY23 loan growth pegged at 14%: India Ratings

After facing challenges the past few years, non-banking finance companies (NBFCs) in India would see normalisation of business activities and grow their loan book by 14 per cent Year on Year base in FY23. The NBFC sector is expected to clock loan growth of 7-8 per cent in the current financial year (FY22), according to India Ratings.

NBFCs had to face liquidity challenges following the default by Infrastructure Leasing & Financial Services Ltd in FY19, and were dealt a second blow when the Covid-19 pandemic struck.

These companies are likely to begin FY23 with sufficient capital buffers, stable margins and sizable on-balance sheet provisioning, while adequate system liquidity would aid funding. Nevertheless, an expected increase in systemic interest rates and asset quality issues in some segments due to the lagged impact of pandemic would be a drag on the operating performance.

Rating agency said the sector has been facing increased regulatory oversight and push towards convergence with banks through various measures such as scale-based regulation, realignment in asset quality classification and Prompt Corrective Action norm.

The incremental impact of the notification on non-performing assets (NPA) recognition however will be moderate as the maximum impact has already been seen in Q3FY22 figures and NBFCs are holding adequate provisions.

The products such as loans against property, housing loans and vehicle finance could witness a higher demand than personal and unsecured business loans which saw a higher demand during the pandemic.

Growth in the vehicle finance segment could revive depending on the availability of vehicles which are facing component shortage due to the pandemic, along with an increase in borrower confidence towards an economic recovery.

The gold loan segment could see moderate growth in tandem with gold prices along with opening up of other financing avenues for borrowers. Tractor financing could remain stable with growth being in line with that of the agriculture sector and government rural spend, it added.