Retail NBFCs need fresh equity capital to maintain their pace of growth

Debt-to-equity ratio jumps to 10-year high during FY18 as borrowings account for three-fourth of industry's incremental asset growth

As liquidity squeeze tightens and fundraising becomes expensive, retail non-bank lenders will have to raise incremental equity capital to maintain their pace of growth. The industry’s average balance sheet leverage ratio jumped to a 10-year high of 6.3x during FY18, up from 5.9x a year ago and 4.1x in FY10.

In comparison, HDFC — the industry leader and the lender least affected by the recent turmoil in the industry — had debt to equity ratio of only 3.9x last fiscal (see the adjoining chart).

In all, five non-bank retail lenders reported debt to equity ratio of 10 or more last