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Informist, Tuesday, Sep 24, 2024

--S&P: Recent RBI steps may moderate credit growth of Indian fincl cos 

--S&P: See growth of pvt fincl cos fall to avg of 18% FY25 vs 20% FY24 

--S&P: Emerging co-lending models are easing funding pressure 

MUMBAI – The growth of private non-banking finance companies is expected to decline to an average of 18% in the current financial year from 20% a year ago, due to the steps taken by the Reserve Bank of India, such as raising the risk weights on unsecured loans and loans to non-bank finance companies, S&P Global Ratings said in a report today.

"We anticipate recent actions by the Reserve Bank of India will curtail lenders' over exuberance, enhance compliance, and safeguard customers," Geeta Chugh, credit analyst at S&P Global Ratings said in the report. RBI's decision on risk weights was taken to constrain growth in the unsecured segment and to reduce the dependency of non-bank lenders on banks.

Last November, the central bank increased the risk weight on exposure to consumer credit, including personal loans, of commercial banks and non-bank lenders to 125% from 100%. It also increased the risk weight on credit exposure of banks to non-banking finance companies by 25%, over and above the risk weight associated with the rating of these companies. 

S&P in the report said it expects the loan growth for non-bank lenders to be at 14%, which would be higher compared to the banking sector. It said that the loan growth will be supported by retail repayment capacity. Due to the strong capital levels in upper-layer non-bank finance companies, the rating agency expects the loan growth to rise in the next two years.

"We see the strength in retail lending as a competitive edge, with finance companies (non-bank lenders) dominating in some retail products," Chugh said. The retail loan segment of banks and non-bank finance companies could triple by 2030, which would increase the household leverage to 34% by 2030-31 (Apr-Mar) from 23% at the end of this year, the report said. 

Non-bank finance companies have been diversifying their funding sources and the adoption of co-lending models is easing the funding pressure, the report said. It also said that non-bank lenders having a strong parentage will have better access to competitive rates.

The rating agency also expects the asset quality of banks and non-bank lenders to improve due to strong underwriting. "This is reflected in their focus on lending primarily to low-risk customers and generally low loan approval rates," the report said.  End

Reported by Christina Titus 

Edited by Aditya Sakorkar

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