 "Retail loans given by NBFCs to grow 18-20% in FY24, says Icra report")
Rating agency ICRA has revised its growth estimates for retail credit by finance companies to 18-20 per cent for FY24 from an earlier assessment of 12-14 per cent, citing strong traction for unsecured loans.
The growth in unsecured credit, comprising personal and consumption loans, unsecured small enterprise loans and microfinance loans, would remain strong. The NBFC-Retail asset under management (AUM) is estimated at around Rs 14 trillion as of March 2023, said ICRA in a statement on Thursday.
High growth in the NBFC-Retail segment will be driven by an expected expansion of 26-28 per cent in FY24 for unsecured loans, which stood at about Rs 5.1 trillion as of March 2023.
Digitalisation and cross-selling are two factors leading to the recent high growth in unsecured loans. Non-banking financial companies (NBFCs) are either driving digitalisation of credit on their own or are partnering with fintechs and smaller peers, especially for new-to-credit borrowers.
ICRA said unsecured loans would face higher credit losses even on a steady-state basis compared to most other secured lending segments. Loan losses for this segment would be about 4-6 per cent, on a cohort basis.
A continuously evolving risk-based pricing, an underwriting process and an eye on early warning signals, i.e. borrower-level leverage, events impacting borrower cash flows, etc, would remain key aspects for monitoring.
Secured NBFC-Retail AUM, consisting of products like vehicle finance, gold loans and secured business loans, is expected to grow at a rate of 14-16 per cent, said A M Karthik, co-group head, financial sector ratings at ICRA.
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The NBFC-Retail AUM grew by a robust pace of about 26 per cent in the last fiscal (FY23), on the back of an uptick witnessed in all loan segments. The driver was the unsecured loans segment, which expanded by 44 per cent. Unsecured loans increased at a CAGR of 27 per cent over the five-year period ended FY2023, while secured loans grew at 11 per cent during the same period.
The business activity of housing finance companies (HFC) is also expected to move into high gear. The HFC-Retail AUM, estimated at around Rs 7.0 trillion as of March 2023, consisting of home loans (HL) and loan against property (LAP), is expected to grow at a relatively moderate 12-14 per cent in Fy24 on the back of rising competition from banks. The growth rate of HFC’s retail AUM would still be higher than the previous estimate of 11-13 per cent.