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Informist, Thursday, Sept. 18, 2025

 

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--Moody's: Rapid growth in Indian NBFC's retail loans to lead to new NPAs 
--Moody's: Indian NBFC's microfinance loans most vulnerable to new NPAs 
--Moody's: Delinquencies of vehicle loans by Indian NBFC's to increase 
--Moody's: RBI steps to limit deterioration in Indian NBFC's asset quality 
--Moody's: Indian NBFC's adequate loan-loss buffers to contain risks

 

NEW DELHI – Having witnessed rapid growth in retail loans in recent years, India's non-banking financial companies are likely to see a deterioration in asset quality going ahead, Moody's Ratings said Thursday. However, macroprudential measures by the Reserve Bank of India and adequate loan-loss buffers of NBFCs will contain risks.

 

The non-performing asset ratio of the NBFC sector for retail loans is expected to rise in the current financial year by 20-30 basis points, following years of rapid increases in disbursements that have far outpaced India's nominal GDP growth, Moody's said in a report. However, the NPA ratio will remain lower than a peak of over 5% seen in FY22 amid the COVID-19 pandemic.

 

Microfinance loans are the most vulnerable segment with delinquencies rising substantially since FY25. "Unlike past spikes in impairments that were driven by specific events, the current deterioration of microfinance loan quality stems from structural factors, including a high level of borrower leverage," the rating agency said. 

 

Delinquencies of vehicle loans will also increase even as such loans at NBFCs have grown slower than other types of retail loans, Moody's said. The latest changes to the goods and services tax regime could spur demand for vehicle loans. Asset risks can also rise because "collateral values can decline, and vehicle utilisation can decrease due to increased supply, hurting cash flow for borrowers." 

 

Losses from gold loans will be limited as they are backed by liquid assets whose values have risen significantly, Moody's said. Prime mortgage quality will also remain strong, supported by prudent underwriting practices, broadly stable employment conditions, and steady appreciation of housing prices.

 

Strong economic conditions and the central bank's measures to contain risks will prevent a sharp deterioration in overall asset quality across the sector, Moody's said. In FY24, the RBI raised risk weights for unsecured loans and for bank loans to NBFCs. Interest rate cuts of 100 bps in 2025 so far will gradually lead to lower rates of new loans, making them more affordable for borrowers, Moody's said.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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