Mumbai, RBI’s regulatory initiatives and asset quality trends will push non-bank lenders to slow down their growth in asset under management (AUM) to 15-17 per cent in the current fiscal and next, domestic rating agency Crisil said on Monday. The sector had achieved a handsome growth of 23 per cent in the AUM in FY24, the agency said, adding that even with the slower growth, the AUM expansion will be higher than the 14 per cent of the last decade.
Entities will opt for “sustainable growth” because of the regulatory environment and asset quality trends, the rating agency said, adding that the present situation will lead to recalibration in strategies.
RBI had in November last year increased the risk weights on banks’ lending to NBFCs along with the lending to unsecured loans, where NBFCs are very active. Additionally, the micro loan segment is also showing signs of stress on asset quality lately.
The agency’s chief rating officer Krishnan Sitharaman said the regulatory landscape, wherein the compliance actions have also intensified, will have a bearing on the way the sector operates, and added that RBI moves are influenced by ensuring systemic risks are curtailed and also towards customer protection.
Crisil’s managing director Subodh Rai said at an overall level, there is not much volatility in the delinquency levels for NBFCs, but added that the microfinance and unsecured lending are showing some uptick.
“…rising concerns around household indebtedness and asset quality risks will have a bearing on growth strategies in specific retail asset segments such as microfinance and unsecured loans,” the agency said.
It also added that intensified regulatory actions on compliance focused on customer protection, pricing disclosures and operational compliance will necessitate the process of recalibration.
Rai also said that diversifying funding mix is a necessity for NBFCs, especially given a slowdown in bank lending to such entities.
When asked about the slowing asset growth’s impact on the overall economic growth, where the GDP expansion has dipped to a 7-quarter low of 5.4 per cent in Q2, Sitharaman said there is a co-relation between GDP growth and lending growth, and the same is playing out in FY25 and FY26 as well, where the GDP growth projection is at lower levels.
Even as the overall AUM growth will slow down, the growth in the AUM of the largest contributors of home loans and vehicle loans, constituting 45 per cent of the segment, will have a limited impact as it will be driven by fundamentals
The unsecured loans and microfinance segments, accounting for 23 per cent of the overall NBFC AUM, are expected to be impacted the most, the agency said.
Criticality of compliance — both in letter and spirit — has been brought to fore through recent regulatory pronouncements and asset quality metrics are weakening in the past few quarters in some segments, Sitharaman said.
“This has necessitated a recalibration of growth strategies, especially in unsecured loans and microfinance,” he added.
Unsecured lending, which posted a compounded annual growth rate of 45 per cent in the last three fiscals, will see an AUM growth of 15-16 per cent in FY25 and FY26, he said, adding that the growth in MFI (micro finance institutions) AUM will be muted.
Bank lending to NBFCs has remained in the range of Rs 13-13.5 lakh crore since November 2023 when regulatory risk weights were raised, and its senior director Ajit Velonie said only the large NBFCs backed by strong parents have been able to tap into alternatives like commercial paper and bond markets.
Velonie also said that he expects securitisation volumes to be highest ever this fiscal, as entities look at other funding alternatives.
