Credit sanctions to pick up traction as base effect fades, say NBFCs

Credit sanctions by finance companies slumped in Q4 FY23 due to base effect and a spike in interest rates but will pick up in coming quarters on the strength of underlying demand and rate stabilisation, senior executives of NBFCs have said.

While sanctions moderated in growth, disbursements remained strong in FY23. Credit offtake has been healthy in the first two months of FY24, they said.

Data from the Finance Industry Development Council (FIDC) and CRIF showed that loan sanctions by non-banking finance companies (NBFC) grew by mere 2.0 per cent year-on-year (YoY) to Rs 4.46 trillion in Q4 FY23. In Q4 FY22, sanctions by NBFCs had increased by 28.36 per cent YoY. CRIF, a credit bureau, works with FIDC, the NBFC industry’s lobbying group, for analysis.

K V Srinivasan, co-chairman of FIDC and chief executive officer of Profectus Capital, said NBFCs are confident that credit sanctions will pick up in coming quarters on the back of demand in the economy. Sanctions for consumption-oriented areas and housing were tepid, but those for investment activities like commercial vehicles and equipment did better in Fy23.

The last quarter of FY23 (January-March) showed normal business activity compared to the same period the year before, reflecting pent-up demand after the pandemic. It is a base effect that resulted in low sanctions in Q4 FY23. As this base effect fades, credit sanctions will also improve as a precursor to disbursements, said a top finance company executives.

Krishnan Sitaraman, chief rating officer and senior director at CRISIL Ratings, said the economy is doing well and cash flows have normalised, supporting demand for credit in FY24.