NBFCs to see better loan growth in FY21: Tata Capital CEO Rajiv Sabharwal

The non-banking financial company (NBFC) sector will see better loan growth in 2020-21 (FY21) but it will take a fair bit of time for book size to grow at over 20 per cent, said Rajiv Sabharwal, managing director and chief executive of Tata Capital. 

“Growth in the sector is clearly a function of what the growth in the economy is. If the economy is seeing a slowdown, you will see the same happening in the NBFC sector.  I feel the NBFCs will see moderated growth this year, compared to the last year. As far as next year is concerned, we hope disbursements will improve. This year, disbursements are lower than what it was last year,” Sabharwal said. 

“Next year, we will see the disbursements improving but for the book to grow over 20 per cent, it will take another year. Because, first disbursements grow and then the book starts growing,” he said. 

The combination of factors — slow growth in the market, asset-liability management positions of certain NBFCs, housing finance companies (HFCs) and the conservatism of players in the mix — has resulted in a slow loan growth.  

“We have also become more conservative at this point of time because if we see that certain segments are not doing well or their business performance is not as good, you tend to become more conservative in your credit policy. It’s good to be prudent rather than feel sorry later,” Sabharwal said.

Rating agency CRISIL had said due to constrained funding access with rising borrowing costs, re-calibration and de-risking of loan book and a slowing economy, the NBFCs and HFCs would see their asset under management grow at 6-8 per cent in FY20, compared to 15 per cent in FY19. Sabharwal, however, said the cost of funds had actually come down for the NBFCs. 

The commercial paper rates are lower than what it was in the pre-IL&FS period. Moreover, with stability in rupee, fair amount of external commercial borrowings (ECBs) have happened. So, foreign money is coming into the market and because of stability in rupee the hedging cost is also lower. 

“In fact, the cost of funds for borrowing money overseas is sometimes cheaper than the domestic market,” Sabharwal said. Another good thing that has happened is the tenor by the NBFCs has increased.