Finance firms may keep cornering mkt share from banks: S&P Global Ratings

S&P Global Ratings expects NBFCs to expand loan books at 21-22% in two years, outpacing banks' 11-12% growth, with India's household leverage set to rise to 31% by FY30

S&P Global Ratings on Thursday said India's finance companies, especially the upper-layer firms, are likely to continue to corner the market share from banks over the next two years, backed by a higher growth rate and robust financial profile.

 

“We expect rated finance companies to grow their loan books at a 21-22 per cent growth rate over the next two years, higher than 11-12 per cent for banking-sector loan growth”, Geeta Chugh, Managing Director, S&P Global Ratings, said. They will further strengthen their market position, particularly in the retail lending sector, which remains significantly underpenetrated in India, she added.

 

 

In particular, upper-layer non-banking finance companies (NBFCs) are among the market leaders in many segments, such as used commercial vehicle financing, gold financing, consumer durables funding, two-wheeler financing, and microfinance.

 

Referring to the implications of the Goods and Services Tax (GST) reforms on credit, Chugh said their implementation is expected to bolster consumption, subsequently driving growth in retail loans, which have experienced sluggishness over the past few quarters. 

 

With robust capital reserves, upper-layer NBFCs were well-positioned to support loan growth while providing a buffer against potential downturns. Strong earnings could further enhance this financial cushion, S&P said. Referring to room for credit expansion, S&P pointed out that one of the drivers for this sector was its strong presence in retail lending, which was still under-penetrated in India.

 

S&P data also showed that Indian households were still less leveraged among the emerging markets. Leverage of households in India stood just over 20 per cent, compared to above 80 per cent in the case of Thailand, Malaysia, and over 60 per cent in China. “India’s household leverage to rise to 31 per cent by FY30”, the rating agency said.

 

For raising resources, S&P said this sector's funding conditions were sensitive to confidence and thus remained subject to volatility. Financial companies with strong parent firms tend to have better access to funding and get it at more competitive rates. Co-lending and direct assignments were further easing funding pressure.