NBFCs’ share of retail loans at a 10-year high
They account for 36% of all retail loans in FY17, up from 29% in FY11
Retailnon-bankingfinancecompanies (NBFCs) areonaroll. Theirshareoftotal retaillendinginIndiareachedan all-timehighof36percentattheendof Marchthisyearandtheycontinueto growfasterthanbothpublicandprivate sectorbanks( Seeadjoiningchart).
AdvancesbyretailNBFCswereup 17percentlastfiscalyearoverthe previousyear, against15percentgrowth reportedbyprivatesectorbanksand 2.5percentdeclineintheloanbookof publicsectorbanks(PSBs).
RetailNBFCssuchasHousing DevelopmentFinanceCorporation (HDFC), LICHousing, Indiabulls Housing, andBajajFinancenow accountfor11percentofthecountry’s combinedbankandnon-bankcredit. In FY11, theirsharehadtoucheda10-year lowof just6.8percent.
Invalueterms, retailNBFCswerethe second-biggestsourceoffundingforall borrowers, whichincludesretailand corporate, comingafterprivatesector banksandaheadofPSBsin2016-17. NBFCsdisbursed~1.31lakhcroreworth ofloansinFY17, whilethe loanbookof listedPSBsdeclinedby~1.35lakhcrore. Privatesectorbankswereatthetopwith freshloandisbursalsof~2.72-lakhcrore lastfiscalyear.
Theanalysisisbasedonadvancesby listedretailNBFCsthatarepartofthe BSE500, BSEMidCapandBSE SmallCapindex. Thedataforbanksare forlistedPSBsandprivatesectorbanks. Banks’numbershavebeenadjusted formergersandacquisitionsinthelast 10years. TheNBFCsinthesample includeHDFC, LICHousingFinance, GICHousing, DewanHousingFinance, IndiabullsHousing, BajajFinance, L&TFinance, EdelweissFinance, ShriramTransportFinance, Bharat Financial, andManappuramFinance. ExpertsattributetheriseofNBFCstoa declineincompetitionfromPSBsand availabilityofcheapcapital, whichthey couldlendtotheircustomers.
“MostofthePSBshavelargely withdrawnfromthelendingmarketas theyarefocusingonresolvingbadloan problems. Thishasopenedupnew growthavenuesforNBFCsandprivate sectorbanksinfast-growingsegments suchasautoandhomefinance,” says GChokkalingam, founderand managingdirector, Equinomics Research& Advisory.
Thegrowthwasaidedbyasteady reductioninthecostoffundsforNBFCs duetoageneraldeclineininterestrates afterthehighsof2013. Theaverage borrowingcostforNBFCsinthesample declinedto8.9percentduringFY17, from ahighof10.3percentinFY13. Buoyancy intheequitymarketsandinvestors’ interestinNBFCsalsohelpedthese lendersraiseincrementalequity, allowingthemtoscaleuptheirlending.
“Liquidityhasbeenbenigninthe lastfewyears, givingNBFCsaccess tolow-costdebtcapital. They supplementeditbyraisingfreshequity, takingadvantageoftherallyinthestock markets,” saysKarthikSrinivasan, seniorvice-president, Icra.
In the last three years, the combined net worth or equity capital of NBFCs has grown at a compounded annual growth rate of 19.7 per cent, nearly 200 basis points faster than the growth in their net profits during the period.
NBFCs have also been helped by an increase in households’ propensity to borrow in the country, with a greater number of Indians now resorting to consumer loans for bigticket purchases such as consumer durables and furniture than in the past. Total retail credit is up nearly 64 per cent in the last three years in India, against 34 per cent rise in personal disposable income during the period.
The growth has also been aided by generally lower bad loans in the retail segment compared to corporate loans. “Most retail lenders have significantly lower non-performing assets than corporate banks. This has given them the confidence to grow without the worries of bad loans,” says Khusroo Panthaky, director, Grant Thornton Advisory.