Loan sanctions through NBFCs slip sharply to 5.7% in June quarter

Housing loans dip 26.6%; high interest plays spoilsport

The growth in credit sanctioned by non-banking finance companies fell sharply to 5.7 per cent year-on-year (Y-o-Y) in the April-June quarter (first quarter, or Q1) of 2023-24 from over 100 per cent Y-o-Y growth a year ago (Q1 of 2022-23, or FY23).

K V Srinivasan, co-chairman of the Finance Industry Development Council (FIDC), attributed this decline to the base effect, also known as the high base of Q1FY23, and the sharp decrease in home loan sanctions impacting growth in Q1FY24.

The growth in Q1FY23 had been very high as the industry was catering to a surge in demand after a slump during the pandemic period. The higher interest rates in the system have dampened home loan offtake activity. However, the growth in unsecured loans and gold loans on a Y-o-Y basis has remained steady.

The pace of sanctions at 5.7 per cent YoY for Q1FY24 is low for the April-June period, also as the pace has been over 15 per cent Y-o-Y in this quarter in a decade, Srinivasan said.

Sequentially, the sanctioned credit shrunk by 20.3 per cent over the January-March quarter (fourth quarter, or Q4) of FY23. In absolute terms, non-banking finance companies sanctioned Rs 3.51 trillion worth of loans in Q1FY24 compared to Rs 3.32 trillion in Q1FY23. Sequentially, this was a decrease from Rs 4.41 trillion sanctioned in Q4FY23.

The sanctions in Q1FY24 were also lower than the average sanctions of Rs 3.84 trillion for four quarters in FY23. 

Good growth was seen in unsecured loans, also known as personal loans (18.7 per cent), gold loans (47.7 per cent Y-o-Y), automobile loans (15.1 per cent Y-o-Y), and equipment loans (16.3 per cent). However, areas such as commercial vehicle loans (minus 2.8 per cent Y-o-Y), housing loans (minus 26.6 per cent Y-o-Y), property-backed loans, and secured business loans showed negative growth, FIDC said in a statement on Monday.

Regarding demographic distribution, the annualised growth was 11.6 per cent Y-o-Y in rural areas, 12.4 per cent Y-o-Y in semi-urban areas, and 2.2 per cent Y-o-Y in urban areas. Sequentially, all three showed negative growth in Q1FY24 compared to sanctions in Q4FY23.

The growth in loans, especially to businesses and industries, is expected to pick up from the third quarter (starting October 2023). The capital expenditure cycle has picked up with a delay. The stable interest-rate regime would support credit growth, especially in home loans, he added.