NBFC loans report strong 37.6% growth, banks still on single-digit

Non-bank firms' sanctions are, however, still half of pre-pandemic level

Reflecting a gradual pick-up in activity, finance companies reported a strong 37.6 per cent growth in sanctions in categories like vehicle loans, housing loans and loan against shares (LAS), among others, at Rs 1.24 trillion in Q1 (first quarter) of FY22 compared to Rs 90,615 crore in Q1 of FY21.

The scale of sanctions was still way below the Q1 numbers of FY20, which stood at Rs 2.38 trillion, according to data by the Finance Industry Development Council (FIDC).

This implies that the economy is trudging back to a laboured recovery, but is far away from the pre-pandemic normalcy, a concern that the Reserve Bank of India (RBI) has been stressing time and again to continue with its accommodative stance till signs of durable growth emerge.

However, the data also point to green shoots in the retail space, which for long has been the engine of credit growth in the system. But the pandemic has pushed up bad debts in retail segment as well, forcing banks to cut back on lending. NBFCs may have stepped in to fill the void, the perk up in lending suggest.

Contrary to the growth in NBFC segment, banking system credit was aneamic, rising at mid-single digit at the end of Q1. Only in Q2, the credit growth has picked up pace somewhat, but still in single digits.

Banking system credit grew just 6.7 per cent year-on-year on August 27, which is better than last year’s 5.5 per cent growth, but still far lower than how the retail-focused NBFCs are expanding their credit books.

This is because large corporate firms are deleveraging, while they are also not investing more because of the slack in capacity utilisation, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday.

However, FIDC also cautioned that the sharp rise in NBFC credit growth is because of a low base, and may not adequately reflect growth in the sector. Effect of the curbs imposed to contain the spread of the pandemic in Q1 was less severe than steps taken in April-June 2020 when economic activity almost came to a grinding halt.

Loans to individuals for purchasing vehicles showed a robust comeback in April-June 2022 (Q1 of FY22) with 157.6 per cent growth in sanctions at Rs 8,378 crore from Rs 3,252 crore in Q1 of Fy21. The activity level was much higher during the pre-pandemic period with sanctions in the region of Rs 14,863 crore during April-June 2019 (Q1 of FY20).

The housing loan segment also saw strong business with sanctions rising by about 150 per cent to Rs 34,925 crore in Q1 of FY22 against Rs 13,943 crore in Q1 of FY21. The slew of rebates in duties, lower interest rates and processing fee waivers along with discounts have partly contributed to the demand for housing loans, NBFC executives said. The sanctions in April-June 2019 were higher at Rs 52,577 crore.

Showing the effects of a buoyant stock market and slew of initial public offerings (IPOs), sanctions on LAS vaulted from Rs 461 crore in Q1 of FY21 to Rs 1,334 crore in Q1 of FY22. The sanction was about Rs 668 crore in Q1 of 2019-20.