NBFCs to benefit from PSB recapitalisation

Far from losing business to public sector banks (PSBs), which will receive capital from the government, non-bank finance companies (NBFCs) expect to benefit from access to credit on better terms and more opportunities to sell banks infrastructure and priority sector loans.

NBFC executives said banks had become hesitant lenders due to capital constraints and the need to protect assets. With banks back in the credit market, competition would intensify, they added.

Better turnaround time, last-mile agility, and use of data analytics and technology provide NBFCs an edge over PSBs in the retail and SME loan segments.

Dinanath Dubhashi, managing director and chief executive officer of L&T Finance Holdings, said NBFCs’ relationship with banks had three facets -- competing for business, borrowing from banks, and selling banks infrastructure and priority sector loans.

The market borrowings of NBFCs have grown in the last 18 months taking advantage of falling interest rates on commercial paper and bonds. Yet NBFCs continue to raise a sizeable portion of resources from banks. They can expect better terms from PSBs looking to expand their loan books. 

According to rating agency ICRA, the total managed retail credit of NBFCs rose by 15 per cent in 12 months to about Rs 6.4 lakh crore by the end of June. Bank credit grew by only 6 per cent in the 12 months till June, according to the Reserve Bank of India.

The microfinance and loan against property segments continued to record moderate growth, while the performance of most other segments like commercial vehicles, passenger vehicles, two- and three-wheelers, and tractors remained largely range-bound, ICRA said.

Kaushik Banerjee, president and chief executive officer, asset-backed finance business, Magma Fincorp, said sectors that would see more credit disbursement in the coming months were government infrastructure projects, affordable housing and the MSME segment. 

NBFCs may face some competition in the MSME segment. But with formal channels accounting for only 15-20 per cent of the credit requirement of MSMEs, the business of NBFCs is unlikely to be affected. The client base of NBFCs was quite different from that of banks, Banerjee said.

Srei Equipment Finance, which depends for business growth on government infrastructure projects, is expected to benefit from bank recapitalisation, as this will lead to growth in the equipment leasing business.

“The bank recapitalisation will lead to growth in the equipment finance business and project funding will increase. Competition will rise but it is much better than no demand at all,” said Devendra Kumar Vyas, chief executive officer of the Srei Equipment Finance.

An executive with a Chennai-based finance company said recapitalisation would not intensify competition between NBFCs and PSBs. He pointed out PSBs were not strong in retail lending because they were not equipped to handle the transactional intensity.

With inputs from Abhijit Lele