The NBFC sector has continued to witness an upward trend in credit growth between September 2022 and September 2023. The gross advances grew by 20.8 per cent— a substantial increase from 10.8 per cent a year ago, revealed a recent report by Mazars.
This growth was predominantly fueled by strong increase in personal loans (32.5 per cent growth) and lending to agriculture industry (43.7 per cent growth). Infact, over the past four years, personal loans category surged by CAGR 33 per cent, significantly outpacing the overall credit growth of nearly CAGR 15 per cent.
The report further added that the recent adjustments in risk weights for certain categories of retail loans are likely to impact the trajectory of credit growth within the sector, both at the general level and more granularly within specific sectors and sub-sectors.
In terms of share, the personal and agricultural sectors saw an improvement. While the share of personal category increased by 2.3 per cent yoy at the end of September 2023, the share of agriculture sector in the overall outstanding loans by NBFCs increased to 1.9 per cent in September 2023, compared to 1.7 per cent a year ago, the report said.
Improvement in GNPA
The GNPA ratio of NBFCs continued to trend down during the first half of FY24 showing signs of improvement across all sectors.
The total GNPA ratio of NBFCs improved to 4.6 per cent in September 2023, down from 5.9 per cent in September 2022. Notably, the personal loans segment which experienced rapid growth in recent years, reported the lowest GNPA ratio at 3.6 per cent as of September 2023, highlighted the report.
Although the GNPA ratio for both the government and private NBFCs have moderated during the period, the GNPA ratio for industrial advances made by private NBFCs still remains relatively high at 12.5 per cent, representing 21.6 per cent of the overall GNPA of the NBFC sector.
Additionally, as compared to September 2022, all the sectors marked improvement in their GNPA ratio by the end of September 2023. Services sector witnessed the biggest improvement in GNPA, declined by 2.9 per cent to 8.1 per cent by September 2023, followed by industry and personal loans sector, recording an improvement of 1.6 per cent and 1.1 per cent respectively, the report added.
NBFCs’ Source of Funds
As of September 2023, borrowings remained the biggest source of funding for NBFCs. Furthermore, as compared to the previous year, NBFCs dependency on borrowings increased by 1.1 per cent to 62.1 per cent in September 2023, while the share of share capital and reserve and surplus declined slightly to 27.9 per cent in September 2023, down from 28.5 per cent in September 2022, revealed the report.
Within borrowings, banks and debentures were the biggest sources of funds, by September 2023, NBFCS raised 25 per cent through borrowing from banks, commercial players and debentures subscribed by banks, and 19.6 per cent through other debentures.
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