ICRA has revised upward the growth outlook for the current financial year for the retail loans of Non-Bank Financial Companies (NBFC-Retail) and Housing Finance Companies (HFC-Retail), which account for the bulk of the overall sector.
The NBFC-Retail asset under management (AUM), estimated at around ₹14 lakh crore as of March 2023, is expected to grow at a higher pace of 18-20% in FY24 vis-à-vis the previously estimated level of 12-14%, as growth in the unsecured loans segment, consisting of personal & consumption loans, unsecured small enterprise loans and microfinance loans, would remain strong, the rating agency said in a report.
At the same time the HFC-Retail AUM, it said, estimated at around ₹7 lakh crore as of March 2023, consisting of home loans (HL) and loan against property (LAP), is expected to grow at a relatively moderate 12-14% (albeit higher than the previous estimate of 11-13%) during the same period on the back of rising competition from banks.
With a growth expectation of 10-12% in the infrastructure and other wholesale loans of NBFCs and HFCs, the total sector AUM, consisting of retail and other wholesale loans (including infrastructure loans), that stood at about ₹40 lakh crore as of March 2023, is estimated to grow at about 13-15% in FY24, it said.
The NBFC-Retail AUM grew by a robust pace of about 26% in the last fiscal, on the back of an uptick witnessed in all loan segments but was primarily driven by the unsecured loans, which expanded by 44%, it said.
Unsecured loans increased at a CAGR of 27% over the five-year period ended FY2023, while secured loans grew at 11% during the same period, it said, adding unsecured loans expected to remain the key growth driver in the current fiscal too.
The jump in unsecured credit can also be partly attributed to the borrower-focused approach of entities vis-à-vis their product-focused approach in the past, it said.
Evolution of credit bureaus and improved understanding of borrower-level cash flows over the years have helped NBFCs fine-tune their underwriting models, it said, adding, the cross-sell of different loan products is being adopted to strengthen the hold on the franchise by improving borrower engagement.
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