Non-Bank Lenders Set to Report 25-30% Growth in AUMs

Non-bank lenders in India are set to report strong growth in their Assets Under Management (AUMs) over the next two financial years, according to a domestic rating agency. Icra Ratings estimates that NBFCs with AUMs of up to Rs 10,000 crore will see their AUMs grow by 25-30 per cent in FY24 and FY25.

Growth Drivers

The growth is expected to be driven by a number of factors, including the continued demand for credit from small businesses and consumers, as well as the government's focus on financial inclusion. The agency also notes that the low level of portfolio seasoning, especially for long-tail loans such as affordable housing and secured business loans, will support growth.

Asset Quality

On the asset quality front, the agency said the reported Gross Stage 3 (GS3) of the entities it assessed was manageable at 2.6 per cent in March 2023 as against 4.2 per cent in March 2022. The agency attributes the improvement in asset quality to write-offs and faster AUM growth.

Digital Lenders

The agency also notes that digital lenders in the sample set reported higher loan losses, with the write-offs standing at 9-10 per cent in the last two fiscals. This is likely due to the higher risk profile of borrowers who typically use digital lending platforms.

Capital Needs

The agency believes that entities in the unsecured loan segments would be required to raise capital in the next 12-18 months to keep their leverage under control. This is due to the fact that unsecured loans typically have higher credit losses than secured loans.

The growth of NBFCs is expected to continue to be a key driver of financial inclusion in India. However, the agency cautions that unsecured loans need to be monitored going forward, as they could pose a risk to the stability of the financial system.