High-street banks are harnessing fintechs to build disproportionately dominant market shares in India’s burgeoning consumption credit market, once considered the bailiwick of non-banking financial companies (NBFCs) and home financiers, which are now ceding ground in most pockets of retail lending, barring the smallest-ticket personal loans.
For banks, the market share in home loans rose to 77% from 74% at the end of June 2023, while for NBFCs it fell to 17% from 22% in FY20, Nomura Securities data showed. Rising interest rates and strict capital norms have slowed fund flows to NBFCs.
This has left banks with additional cash for direct onward lending – and incremental market share in a high-margin, low-risk lending pocket.
“This will continue for the next few quarters as banks increase their lending rates for NBFCs, and as a consequence, NBFCs increase the rates for their customers,” said Anil Gupta, Vice President, ICRA ratings. “Looking at the market share, the squeeze of credit supply will be more for NBFCs. They can think about entering into co-lending with banks where they can still continue to grow assets under management.”
The lending landscape in India is undergoing a change with the spread of digitisation and the advent of fintechs. In the past, banks were hobbled by the lack of infrastructure and costs involved in expanding their geographic footprint into the hinterland. But fintechs and advancements in technology enabled banks to extend their reach without significant inflation in fixed costs.
Nimble NBFCs, which had fewer regulatory compliances to worry about, had reached the interiors as part of their blue-ocean lending strategy. Banks had depended on them for expanding their loan books. But technology, and the altered dynamics in accessing funds, have made the business environment more challenging for non-bank lenders.
