Credit and finance for MSMEs: Large non-banking financial companies (NBFCs) will be looking to diversify into unsecured loans including credit to SMEs and consumer loans, secured SME loans and used vehicle loans next fiscal amid high competition from banks and a rising interest rate environment, said credit rating agency Crisil on Wednesday.
Competition from banks will remain intense and the rising interest rate environment will exert pressure on margins and limit competitive ability, especially in the largest traditional segments of home loans and new vehicle finance, said Gurpreet Chhatwal, Managing Director, CRISIL Ratings. Hence, diversification into higher-yielding segments such as unsecured loans (consumer loans and SME loans), used-vehicle loans, and secured SME loans will be the focus areas for the larger NBFCs, he said.
Unsecured loans, which make up for 8-10 per cent of assets under management (AUM) of NBFCs, are the centre of attention for many large NBFCs. A Crisil Ratings analysis showed disbursements in the category doubled year-on-year last fiscal and grew further by around 50 per cent annualised in the first half of the current fiscal. While demand for consumer loans was high across durables, travel and other personal consumption activities, business loans benefited from macroeconomic tailwinds, with AUM in this segment now expected to grow 20-22 per cent next fiscal, Crisil noted.
Diversification into non-traditional segments by large NBFCs to enhance yields is expected to result in more partnerships such as co-lending with emerging NBFCs focusing on specific asset classes, especially unsecured loans, according to Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings. “This allows the large NBFCs to expand to newer domains in a more cost-efficient manner while reducing time-to-market. For emerging NBFCs, this supports capital-efficient AUM growth.”
Overall, Crisil estimates that NBFCs including housing finance companies (HFCs) but excluding government-owned NBFCs are likely to see 13-14 per cent growth in their AUM next fiscal — twice from around 7 per cent growth rate logged last fiscal as robust credit demand piggybacks the ongoing economic rebound. The growth pre-Covid (FY20) was around 4 per cent and around 2 per cent in FY21.