Mumbai: Despite intense competition from private sector banks, the share of non-bank finance companies (NBFC) and housing finance companies (HFC) in India’s credit pie is expected to rise by 300 basis points (3 per cent) to 19 per cent over the next three years.
According to Crisil Ratings, this would be faster than the four fiscal years, they took to notch up similar growth in credit share from 13 per cent to 16 per cent.
While non-banks would continue to do well in their traditional stronghold of retail finance, they are seen growing fastest in the wholesale finance segment, which would provide a kicker to their overall credit growth.
Home loans, the largest business segment for non-banks, is expected to grow at a steady CAGR of 18 per cent over the next three fiscals, owing to sharper focus of HFCs on the self-employed customer segment and lower ticket sizes.
While loan against property (LAP) segment is expected to see a slower growth amid intensified competition from banks and rising delinquencies, the rating agency said the vehicle finance is expected to rebound from recent lows on the back of higher investments in road and expected improvement in industrial activity.
The underlying asset quality in this segment is also getting better and Crisil expects profitability metrics to tick up post the current transition period.
Wholesale finance is an evolving area where a number of NBFCs have entered over the past five years, many of which have strong parentage.
Consequently, the share of wholesale credit in the overall NBFC credit pie is expected to increase to 19 per cent by 2020 from 12 per cent in 2014.
Noting that the performance of NBFCs has been resilient so far due to their solid understanding of customers, track record of product innovation, efficient delivery systems and differentiated value proposition, the agency said the challenge however is to balance the risk-reward ratio as increasing competition puts pressure on yields.
