Growth in assets under management (AUM) for NBFCs is expected to moderate to 15-17% over the next two years, down from 23% in the previous fiscal, according to Crisil Ratings.
The slowdown is attributed to increased regulatory compliance requirements and rising concerns over asset quality. During a webinar on Monday, Crisil noted that the unsecured loans and microfinance segments, which together comprise approximately 23% of the total AUM, are likely to face the greatest impact.
“Recent regulatory pronouncements have brought to the fore the criticality of compliance- both in letter and spirit- and operational risk management,” said Krishnan Sitaraman, chief ratings officer, Crisil Ratings. “Additionally, asset quality metrics are weakening in the past few quarters in some segments. This has necessitated a recalibration of growth strategies, especially in unsecured loans and microfinance,” he added.
The AUM growth of NBFCs in the two largest traditional segments — home and vehicle loans, which account for 45% of the total AUM — is expected to remain robust, driven by strong fundamentals and with limited impact from the above factors.
Housing finance companies (HFCs), focusing on the affordable segment, are expected to grow at a faster compound annual growth rate (CAGR) of 22-23%. Meanwhile, growth in vehicle finance is projected to moderate but remain healthy at a CAGR of 15-16%.
Unsecured lending, which grew rapidly at a CAGR of 45% over the past three fiscals, has emerged as the third-largest component of the overall AUM. However, its growth is expected to moderate to 15-16% in the current and next fiscals. The microfinance segment, facing asset quality challenges, is projected to see muted growth this fiscal, with a cautious recovery anticipated in the next fiscal.
“Our study shows most of the large NBFCs, especially the parent-backed ones, have tapped alternative funding sources such as capital market instruments, foreign currency borrowings and securitisation over the last three quarters. For the rest, the ability to continue tapping such sources at an optimal cost remains crucial to growth,” said Ajit Velonie, senior director, Crisil Ratings.
Bank lending to NBFCs, which has been largely supportive over the past five to six years, has remained steady at around ₹13-13.5 lakh crore since November 2023, following an increase in regulatory risk weights.
India’s GDP growth, projected to average 6.7% between fiscals 2025 and 2031, is expected to sustain its status as the fastest-growing large economy and create strong growth tailwinds.