Non-Banking Financial Companies (NBFCs) are expected to face funding availability challenges, which may slow their growth compared to the strong expansion seen in the previous two fiscal years, according to an ICRA report. According to the survey, the growth of NBFCs' Assets Under Management (AUM) is predicted to slow to 13-15 percent in the current fiscal year, down from 18 percent the previous year.
Meeting expansion forecasts will require getting the necessary debt finance, as well as refinancing existing debt. The research estimates that the extra loan funding required for AUM expansion in fiscal year 2025 (FY25) will be between Rs 5.6 trillion and 6 trillion. Despite the high demand and unmet credit needs, the risk of slower NBFC AUM growth might rise significantly if the tight funding conditions seen in the first quarter of the current fiscal year remain throughout the year. According to the research, the sector's AUM is expected to cross Rs 50 trillion in the current fiscal year, up from around Rs 47 trillion in March 2024.
The entire credit quality of retail assets owned by NBFCs, excluding housing finance businesses, is likely to decrease by 30-50 basis points over the current fiscal year. The sector's profitability is projected to be impacted by rising funding costs, greater competition from banks, slowing expansion, and asset quality issues. According to the research, the sector's margins will drop by 25-45 basis points from the previous year.
Meanwhile, AM Karthik, senior vice-president and co-group head of Financial Sector Ratings at ICRA, stated that the sector's peak days for non-performing assets (NPAs) are likely past, with delinquencies predicted to climb.
ICRA stated that slower growth, combined with portfolio seasoning following the fast credit expansion in retail asset classes over the previous two fiscal years, will begin to have an impact on asset quality this year. Furthermore, worries about overleveraging and the increasing number of unsecured loans are projected to raise credit risk, posing a greater threat to loan quality in the industry.
