The loan growth of NBFCs (non-banking financial companies) is expected to sustain in 2023-24 (April-March) despite challenges over funding. NBFCs are tapping into various routes like selling assets through loan pools and entering into co-lending partnerships to meet their funding needs, said bankers.
“We do not see any challenge. We have been doing securitisation from the beginning. There is always a big demand for our assets,” Umesh Revankar, executive vice chairman, Shriram Finance, said.
In recent times, several non-bank lenders have seen a rise in their borrowing costs as the central bank looking to remove excess liquidity from the financial system.
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Non-bank lenders have become increasingly reliant on banks for their funding needs, with banks’ exposure to the segment rising to Rs 13.1 trillion in February from Rs 3.9 trillion in 2016-17 (April-March).
Currently, the exposure of non-bank lenders to banks and the capital market is over 70%, according to credit rating agency India Ratings and Research.
Going ahead, funding is likely to become more expensive and restricted for non-bank lenders as banks realign their pricing as well as funds allocation to factor in increased cost of funds and constraints of their balance sheets, said experts.
Nevertheless, non-bank lenders are not too bothered about the possible rise in borrowing costs due to the wide range of funding avenues available at their disposal.
“In the event that the cost of borrowing increases further from its already high level for NBFCs, we will consider raising foreign debt. Raising debt in India under such circumstances may not be viable, and tapping into international sources could provide more cost-effective financing options,” Parry Singh, founder and chief executive officer, Red Fort Capital, said.
Singh added that they plan to get into securitisation and explore alternative domestic funding sources in the future. At present, the priority is to build a robust and diverse loan portfolio.
Broadly, India Ratings expects the assets under management of NBFCs to grow at 15-16%. Those lenders that have better access to capital and a lower cost of funds are expected to fare better than peers.
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“Our sources of liability is diversified. We are seeing interest coming from most of the development finance institutions from across the globe. We have seen only a 40-basis-point increase in borrowing costs, which is easily transmittable,” Shachindra Nath, vice chairman and managing director, U GRO Capital, said.
“When a bank lends to an NBFC, it is at a 100% risk weight. In co-lending, the risk weight for the bank is much lower because we are originating MSME assets and these are secured loans. Hence, banks are providing much finer rates on the co-lending side.”