 "NBFC's asset growth to sharply decline to 15-17% in FY 2025, 2026")
The growth in assets of non-banking finance companies (NBFCs) in India is expected to sharply decline to 15-17 per cent year-on-year (Y-o-Y) in the current (FY25) and next financial year (FY26) from 23 per cent in FY24.
The factors that will weigh in growth include recalibration in strategies amid rising delinquencies, funding and liquidity conditions including slowing of bank funding and tight regulations, according to CRISIL Ratings.
The expected growth will still be above the decadal average of about 14 per cent (financial years 2014-2024).
The assets under management (AUM) growth of NBFCs in the two largest traditional segments — home and vehicle loans (about 45 per cent of NBFC AUM) — will continue to be driven by fundamentals with limited impact of the above factors. On the other hand, unsecured loans and microfinance segments, accounting for about 23 per cent of the overall NBFC AUM, are expected to be impacted the most, CRISIL said.
Elaborating on factors weighing on growth, the rating agency said first, rising concerns around household indebtedness and asset quality risks will have a bearing on growth strategies in specific retail asset segments such as microfinance and unsecured loans.
Second, regulatory compliance requirements have intensified with focus sharpening on customer protection, pricing disclosures and operational compliance which will necessitate process recalibration.
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Krishnan Sitaraman, chief ratings officer, CRISIL Ratings, said, “Recent regulatory pronouncements have brought to the fore the criticality of compliance — both in letter and spirit — and operational risk management.”
And third, the access to diversified funding sources, a crucial determinant of growth, especially given the slowdown in bank lending to NBFCs, will differ across NBFCs, CRISIL added.
Home loans are expected to maintain a steady Compound annual growth rate (CAGR) of 13-14 per cent. Policy initiatives, such as the re-introduction of the Interest Subsidy Scheme, will provide impetus.
Housing finance companies (HFCs) focused on the affordable segment (below Rs 25 lakh loan ticket size) are likely to grow faster at a CAGR of 22-23 per cent. Growth in vehicle finance is estimated to moderate, but remain healthy at CAGR of about 15-16 per cent.
Unsecured lending clocked rapid growth in the past three fiscals at a CAGR of about 45 per cent and has become the third-largest component of the overall NBFC AUM. But, that pace is seen moderating to 15-16 per cent in this and next fiscals.