Non-banking finance companies' and housing finance companies' wholesale credit book, which includes real estate and infrastructure lending, is likely to grow at 21 per cent annually till 2020, said a report.
Asset quality in the segment has largely been stable because of robust controls, and despite an increase in infrastructure loan delinquencies, according to the report by rating agency Crisil.
"The wholesale credit book of non-banks " comprising real estate lending, infrastructure finance and structured credit " is seen growing at a pace of 21 per cent annually till 2020, or 350-400 basis points faster than the retail and MSME (micro, small and medium enterprises) segments," it said.
Non-banks include NBFCs and HFCs, but excludes government-owned non-banks.
With this, the share of wholesale credit in non-banks' overall credit pie would surge to nearly 20 per cent from just 12 per cent in 2014, according to Crisil.
The report said growth in real estate financing, which constitutes a tad over half of the wholesale credit book, would be driven by pent-up demand in affordable housing and rising ticket sizes stemming from funding consolidation.
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"As banks remain cautious in this space, non-banks have stepped in, aggregating exposure across projects in different stages of completion," it said.
The agency expects infrastructure financing, which accounts for roughly a quarter of the wholesale credit portfolio of non-banks, to benefit from government spending.
The report, however, said the wholesale credit segment has challenges due to high concentration risk with the top 10 accounts of a typical non-bank operating in the infrastructure space, comprising 25-30 per cent of its advances, which can cause volatility in asset quality.
According to Crisil's senior director Krishnan Sitaraman, most non-banks have managed risks better, backed by stringent controls.
"The security structure is robust, with high degree of operational control over escrow cash flows, specifically in real estate exposures. The collateral cover in structured loans tends to be high at about 2.5 times on average,"he said.
Gross non-performing assets (NPAs) in the wholesale segment stand at nearly 2.5 per cent as on March 31, 2018, significantly better than that for the banking sector, according to the report.