Non-banking finance companies set for faster growth
MUMBAI: The unmet credit demand among small entrepreneurs and rural households have helped many of the leading non-banking finance companies (NBFCs) to grow their loan booksfaster than banks. This has also bolstered the share prices of listed NBFCs, delivering high double-digit returns to shareholders. “Just as stock market investors were writing obituaries of NBFCs that did not make the cut for banking licenses, a new cycle was emerging for some of these companies.
“Over the last two years, the overall loan book of NBFCs grew at 16 per cent annually, or almost twice as fast as bank credit growth over the same period. There is a huge unmet demand for credit among small enterprises, where cash flows are difficult to assess and a residential property may be the only collateral. “The distribution reach of many NBFCs remains unmatched by banks in areas such as microfinance, used-vehicle financing or rural housing,” said Amay Hattangadi, managing director and Swanand Kelkar, executive director at Morgan Stanley Investment Management.
The shares of companies like Mannapuram Finance, Bharat Financial Inclusion, Muthoot Finance and Bajaj Finance have soared 173 per cent, 79 per cent, 77 per cent and 72 per cent respectively in 2016 till date. Others like Shriram Transport Finance, Cholamandalam Investment, L&T Finance, Edelweiss Financial and JM Financial have also posted returns in the range of 30 per cent – 60 per cent during the same period. According to Morgan Stanley, the top 12 NBFCs are barely 5 per cent smaller in size than the top five private sector banks.