NBFCs' consumer, gold loan sanctions shrink QoQ in Q4 FY24 after RBI action

Regulator last year hiked risk weights for unsecured loans and put curbs on IIFL Finance, a large player in gold loan business

Loans sanctions by finance companies in consumer credit and gold loan categories shrunk sequentially in the fourth quarter of financial year 2023-24 (Q4 FY24), after the banking regulator cautioned about the pace of such credit expansion.

Consumer loan sanctions contracted by 16.2 per cent in Q4 FY24 over Q3, according to data from the Finance Industry Development Council (FIDC). In absolute terms, non-banking finance companies (NBFC) sanctioned loans worth Rs 25,358 crore in Q4 down from Rs 30,269 crore in Q3. Growth slowed down sequentially in Q4 FY23 too but the extent was less at four per cent shrinkage.

Gold loan sanctions dipped sequentially 6.5 per cent in Q4 FY24. In absolute terms, sanctions were to the tune of Rs 47,092 crore compared to Rs 50,340 crore in Q3 FY24. In Q4 FY23, the gold loan segment hit top gear with 34 per cent quarter-on-quarter (QoQ) growth.

Several consumer lending sectors, such as education, consumer and gold loans, showed negative QoQ growth, likely reflecting the “cautionary advice” of the Reserve Bank of India (RBI), said FIDC in a statement.

Personal loans too moderated with sanctions growing by just 1.4 per cent QoQ in Q4 FY24. Sanctions had clocked a growth of 5 per cent QoQ in Q4 FY23, according to FIDC data.

Besides hiking the risk weights for unsecured loans in November 2023, the RBI also curbed IIFL Finance, a large player in gold loan business, to stop fresh sanctions and disbursement citing material supervisory concerns.

Overall NBFC loan sanctions slowed down to 2.6 per cent QoQ growth in Q4 FY24 compared to 7 per cent in Q4 FY23.

K V Srinivasan, co-chairman of FIDC, told ‘Business Standard’ the first quarter is usually slow and has small share in the business for the entire financial year. The RBI’s caution and action, which led to slowdown in business in Q4 FY24, will continue to have bearing on activity in the current financial year.

According to rating agency ICRA the finance companies have steadily improved their market position by expanding at a healthy compound annual growth rate (CAGR) of about 15 per cent during FY2017-FY2024.  Overall NBFC credit is set to cross the Rs 50 trillion mark (Rs 34 trillion excluding NBFC-Infrastructure) in Fy25.

Considerable growth in the AUM warranted adequate regulatory evolution in view of the new products and services and the increased interlinkages between NBFCs and various financial sector entities, rating agency added.