Co-lending assets under management (AUM) of non-banking financial companies (NBFCs) is nearing ~Rs 1 lakh crore after more than 5 years since the model came into being, said a report by CRISIL Ratings. Amidst rising interests of partners – NBFCs as well as banks, growth momentum over the medium term, is seen healthy at 35-40 per cent annually, it added.
CRISIL reported the findings based on a study of ~100 NBFCs, accounting for over 90 per cent of the sector’s AUM. Interestingly, it added that only about a third of these have active co-lending books currently.
“Co-lending is seen as a win-win for NBFCs and banks alike, as it allows sharing of risk and rewards. For NBFCs, particularly for mid-sized and smaller ones, it enables access to bank funding as well as diversification in funding avenues. This becomes even more relevant in light of the recent increase in risk weights for bank lending to NBFCs. The model also allows NBFCs to grow in a capital-efficient manner. For banks, on the other hand, it provides optimal access to niche customers and geographies and also aids them in meeting their priority sector lending targets,” said Ajit Velonie, Senior Director, CRISIL Ratings.
Of the current overall co-lending book, personal loans alone account for about a third of the AUM, followed by housing loans at around 20 per cent and unsecured MSME loans and gold loans each making up around 13 per cent of the pie. Secured MSME (including loan against property) and vehicle loans comprise the rest ~20 per cent, the report added.
Even as the co-lending books for all asset classes are expected to grow, the pace of growth for personal loans is expected to be slower than that seen in the recent past. This, it said, is due to the revision in the risk weight of unsecured consumer credit to 125 per cent now from 100 per cent earlier, which would lead to some moderation in growth for unsecured loans to 25-35 per cent in fiscal 2025, from an estimated growth of 35 per cent in fiscal 2024.
“With recalibration in growth of personal loans following increase in risk weights, the share of personal loan in the co-lending book could decline in fiscal 2025, and that of MSME and home loans should go up. This will be supported by the government’s focus on increasing the share of MSME sector contribution in India’s gross domestic product and ‘Housing for All’ initiatives. Net-net, co-lending will continue to see increased traction as NBFCs look for alternate funding sources to cater to the healthy demand for retail loans,” said Malvika Bhotika, Director, CRISIL Ratings.
Growth will also be supported by controlled asset quality seen so far in the co-lending portfolio of banks and NBFCs. While sustenance of asset quality will be the key to long term success of the co-lending business model, the manner in which regulations governing co-lending evolve will also bear watching, CRISIL concluded.