Unsecured loan growth to moderate after RBI norms on lending: NBFCs

The growth of unsecured loans among non-banking financial companies (NBFCs) is likely to moderate after the Reserve Bank of India’s (RBI’s) decision to increase the risk weightage of bank loans, said the top management of such lenders during the India Debt Capital Market Summit 2023 organised by Trust Group.

“There is a good reason to believe that unsecured lending will slow down and correspondingly the interconnectedness between NBFCs and banks will also come under pressure after the RBI’s signal,” said Jairam Sridharan, managing director (MD) of Piramal Capital & Housing Finance.

Earlier, after repeated caution on surging unsecured loans, the RBI increased the risk weightage for unsecured loans to 125 per cent from 100 per cent for banks and NBFCs. 

Further, the central bank also increased the risk weight on bank loans to higher-rated NBFCs (A and above) by 25 percentage points. 

Rakesh Singh, MD and chief executive officer (CEO) of Aditya Birla Finance, said: “The credit growth in the banking system was quite robust in the past 12-18 months. There will be some moderation, especially in segments where there have been concerns — like unsecured lending.”

Even as the officials are certain of an increase in price, they believe that the banks might distinguish between the NBFCs with higher exposure to unsecured lending and those with lower exposure and pass on the cost accordingly.

“Some of the bankers are evaluating the decision. The impact will be more on NBFCs with a lot of unsecured lending. As we have only 4-4.5 per cent, the impact won’t be too much. Banks are likely to distinguish between the unsecured heavy and others,” said Y S Chakravarti, MD and CEO of Shriram Finance.

The NBFCs are also looking to diversify their source of borrowing post the central bank’s mandate as the funds from banks are expected to be affected. 

“Source of funding has not dried up. There is enough liquidity; I don’t see it becoming a challenge at this point in time,” Singh said.

“We are looking at non-convertible debentures as they provide an alternative to a few lines of liabilities that were available earlier. Continuously tapping the market really helps in terms of diversifying liabilities and building a sustainable liability over a period of time,” he said.