The consolidated balance sheets of non-banking financial companies (NBFCs) expanded 15% in FY23, with profitability and asset quality improving, but non-bank lenders must diversify and look beyond traditional banks for their funding requirements, the Reserve Bank of India (RBI) said in an annual report.
“The pace of expansion in the balance sheet of NBFCs accelerated in 2022-23. This was led by double-digit credit growth, mainly on account of unsecured loans. Growth in investments decelerated while cash and bank balances contracted,” the RBI said in its Report on Trend and Progress of Banking in India 2022-23.
While NBFCs improved their capital positions to service a rise in credit demand, they focused their lending to segments such as unsecured loans, micro-finance loans and micro, medium and small enterprises. The lending push to these segments was driven by greater competition from banks in areas like vehicle loans and loans against gold amid tight liquidity conditions.
The RBI pointed out that the growth of unsecured loans was more than twice that of secured loans and that as a result, the share of secured loans in total NBFC credit fell to 69.5% at end-March 2023 from 72.4% a year ago. The share of unsecured loans rose to 30.5% from 27.6% over the same period, the RBI said.
“Maturity-wise, there has been a gradual shift towards shorter tenure loans (receivable within 12 months) in credit extended by NBFCs. The longer tenure loans (receivable after 12 months) remained the predominant category (more than two-thirds of the loan book), albeit with a declining share,” the RBI said.
The maximum exposure of NBFCs is towards corporates followed by retail customers, which together account for almost 69% of their loan book.
