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NBFC Funding Squeeze: Growth Outlook Uncertain
24 Nov
Summary
- NBFCs face a tough funding environment despite strong balance sheets.
- Mid-sized and emerging NBFCs struggle to secure stable, low-cost funds.
- Vehicle finance and home loans show steady growth, but risks emerge.
Non-banking financial companies (NBFCs) are navigating a constricted funding environment, even with healthy balance sheets and a positive outlook for credit demand. While larger entities successfully tap into bond markets, mid-sized and newer NBFCs are confronting significant hurdles in obtaining consistent, affordable financing. This situation contrasts with the anticipation of substantial asset under management (AUM) growth, projected to exceed Rs 50 trillion by March 2027.
Despite regulatory adjustments aimed at easing bank lending, advances to NBFCs have plateaued, indicating a cautious approach by banks. Stronger NBFCs have diversified by issuing bonds, but those with fewer alternatives are more vulnerable. Consequently, strategies like securitization, loan sales, and a concerted effort toward funding diversification have become critical. External commercial borrowings are also gaining importance, particularly for housing finance companies seeking to leverage the bond markets.
Looking ahead, vehicle finance and home loans are expected to grow steadily, though home loan growth will moderate. Segments like loan against property and secured MSME lending are forecast to expand robustly. However, rising stress in early delinquency buckets within vehicle finance, unsecured MSME loans, and the loan against property segment warrants attention, with NBFCs expected to adopt risk-calibrated growth strategies.
