Co-lending book of NBFCs likely to touch Rs 1 trillion mark by June

The co-lending book of non-banking finance companies (NBFCs) is expected to reach Rs 1 trillion by June 2024 amid rising interest from partner banks and the benefit of access to funding and diversification, according to CRISIL Ratings.

Ajit Velonie, senior director at CRISIL Ratings, said over the medium term, growth momentum is seen to be healthy at 35-40 per cent annually. In March 2023, the Assets Under Management (AUM) reached about Rs 55,000 crore through the co-lending arrangement.

The partners may increase their focus on other asset classes such as loans to micro, small and medium enterprises (MSME) and home loans, given higher risk weights for personal loans. In November 2023, the Reserve Bank of India hiked the risk weights on exposure to unsecured credit.

Velonie said co-lending is seen as a win-win for NBFCs and banks, as it allows sharing of risk and rewards. For mid-sized and small NBFCs, the co-lending model provides access to bank funding and works as an avenue for diversification. The model also allows NBFCs to grow in a capital-efficient manner.

For banks, this provides optimal access to niche customers and geographies and also aids them in meeting their priority sector lending targets.

Of the current overall co-lending book, personal loans alone account for about a third of the AUM, followed by housing loans at approximately 20 per cent and unsecured MSME loans and gold loans each making up around 13 per cent of the pie. Secured MSME (including loan against property) and vehicle loans comprise the rest, approximately 20 per cent.

Growth will be supported by controlled asset quality seen so far in the co-lending portfolio of banks and NBFCs. CRISIL emphasises that long-term success hinges on sustaining this quality and monitoring regulatory developments.