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NBFCs’ assets under management to grow by 13% in current financial year, says Crisil

The Financial Express logo The Financial Express 30-11-2022 FE Bureau
In FY24, AUMs of the NBFC sector is likely to grow by 13-14%, as per the agency’s estimates. © Provided by The Financial Express In FY24, AUMs of the NBFC sector is likely to grow by 13-14%, as per the agency’s estimates.

Assets under management (AUMs) of non-banking finance companies (NBFC) are likely to grow 12-13% in the current financial year, led by higher credit demand and adequate buffers, ratings agency Crisil Ratings said. AUMs of NBFCs increased by 7% in FY22.

The demand from home, vehicle and unsecured finance will continue to lead the growth in AUMs despite headwinds from higher borrowing costs and competition from banks. The shadow banks are capitalising on the alternative business models such as co-lending and partnerships. In FY24, AUMs of the NBFC sector is likely to grow by 13-14%, as per the agency’s estimates.

“Stronger balance sheets with higher provisioning and lower leverage, receding asset-quality concerns and steadily normalising funding access provide a solid foundation for NBFCs to capitalise on credit demand,” Gurpreet Chhatwal, MD of Crisil Ratings, said.

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However, the merger of Housing Development Finance Corporation (HDFC) with HDFC Bank, which is expected to be completed in the next 8-10 months, will lead to reduction of overall AUM of the NBFC sector in FY24, Krishnan Sitaraman, senior director and chief deputy ratings officer at the ratings agency, said. As of now, private sector NBFC contribution to the total Indian financial credit system is at is around 16%, as per agency estimates. With the exit of HDFC from the NBFC space, the AUM will decline by 4% after the merger, as it will be transferred to the banking sector. However, the exit of HDFC from the NBFC sector will provide headroom for other NBFCs to expand their portfolio, he said.

Home loans, which are the top contributor to the AUM of NBFCs, is likely to grow by 13-14% as the real estate demand continues to be robust despite rising interest rates. Although most NBFCs are reducing their exposure to wholesale book in the real estate sector, some large NBFCs may lend selectively to the construction companies through lease rental discounting loans and last-mile financing.

The vehicle finance segment is expected to grow on the back of demand for used car vehicles, as NBFCs will face competition from banks as borrowers in the new car segment are highly sensitive to interest rates. The unsecured loans portfolio will see the highest growth of 20-22% on account of demand for consumer durables and personal consumption.

Despite the loan growth, NBFCs are likely to see a pressure on their margin on account of higher borrowing costs. The finance cost for NBFCs are likely to increase by 100-120 basis points (bps) in FY23 to 8.3% as compared to 7.1% in the previous year, leading to a contraction in spreads by 40-60 bps, the agency said. While bank borrowing has remained main source of funds for non banks, the deposit taking NBFCs are increasing their focus on deposits. The bank borrowing has increased by 30% y-o-y in September, as per the data from the Reserve Bank of India.

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