NBFC

NBFC Growth in India: Why Asset Expansion Is Moderating to 15–17%? 

NBFCs, or Non-Banking Finance Companies, play a very important role in the Indian economy. In the last fiscal year (FY24), the growth of assets in this sector was about 23%. However, in the next two years, i.e., FY25 and FY26, this pace is likely to slow down slightly to 15-17%.  

This sector is now moving on a more sustainable and controlled path instead of rapid growth. This change is quite important for NBFCs but also for the entire economy. 

This article will discuss the key reasons for the slowdown in growth, sector-wise growth prospects, financing and capital trends, overall policy and economic implications, and future challenges and opportunities. Finally, we will discuss how NBFCs can adapt to a sustainable growth path. 

What Are the Key Reasons Behind the Slowdown in NBFC Growth? 

Given below are the key reasons for the slowdown in NBFC’s growth-  

1) Regulatory impact 

The Reserve Bank of India has recently tightened the lending norms for the NBFC sector. When banks lend to NBFCs, the risk factor has increased. The same rule applies to unsecured loans. So, it has become more difficult for NBFCs to borrow money from banks than before. 

2) Worries about credit quality 

The risk in the unsecured loans and microfinance sector has increased significantly. The debt pressure on ordinary households is increasing with defaulted loans. This situation has made NBFCs more cautious. 

3) Change in Strategy 

NBFCs used to increase loans to capture the market quickly. But now they are emphasizing sustainable growth, risk control, and proper profitability. 

4) Funding 

As bank lending has become limited, NBFCs are having to raise money from the market. For example, bond issues, securitization, and even loans from abroad. However, these have high costs and risks, so growth will also be somewhat slower. 

How Are Different NBFC Sectors Expected to Grow? 

a) Traditional sector (about 45% of NBFC assets) 

Home loans: The home loan sector is likely to grow at a rate of 13-15% in the next few years. The government’s interest subsidy scheme is further boosting this sector. The growth is high in the affordable housing sector (loans below ₹25 lakhs), which is likely to be around 22-23%. 

Vehicle loans: Demand for new cars, the used car market, and interest in high-priced cars are expected to grow at a rate of 13-16%. 

b) High-risk sector (around 23% of total assets) 

Unsecured loans: For a few years, this sector has been growing incredibly fast, around 40-45%. However, as risks increase, the growth will come down to 15-16%. 

Microfinance: The risk of default has increased in loans given to low-income people. Therefore, the growth of this sector has come to a standstill. It may gradually turn around, but not very quickly. 

Home loans and car loans are generally relatively safe, so they will grow slowly but steadily. Unsecured loans and microfinance offer the opportunity for quick profits, but the risk is also much higher. So, the biggest challenge for NBFCs now is to maintain balance. 

What Are the Current Financing and Capital Trends? 

Currently, the biggest challenge for NBFCs is funding. Relying solely on bank loans will not work. So, they are now looking for alternative sources. NBFC Registration plays a key role in enabling access to these funding options. Capital markets, securitization, and foreign loans are all being used to raise funds. Although the cost is higher, the sources of financing are becoming more diverse. 

However, the limitations of bank loans are also a big issue. Since the end of 2023, the Reserve Bank has imposed additional risk weight on banks. So, it has become difficult for NBFCs to easily get money directly from banks. 

Amidst this challenge, one positive aspect is the strengthening of capital. In the last three and a half years, NBFCs have been able to raise about ₹70,000 crore in equity. So, their balance sheets have become stronger. 

Overall, today’s NBFCs are much more stable than in the past. Even though the growth rate has slowed down slightly, they are much better prepared to maintain credit flow and handle shocks. 

How Is the Macroeconomic and Policy Environment Affecting NBFCs? 

The Indian economy is expected to grow at a rate of around 6.5% in the coming days. This growth will create a steady demand for loans for NBFCs. However, NBFCs have increased their borrowing costs by raising interest rates.  

The policy and regulatory environment are also important. The new rules of the Reserve Bank have made NBFCs more cautious. Instead of increasing loans as before, they are now emphasizing risk and sustainable growth. 

There is also a change in the competition. The cost of funds for banks is much lower than for NBFCs. So, banks are moving ahead, especially in housing finance. This pressure is forcing NBFCs to look for new strategies. 

What Lies Ahead for NBFCs: Future Scenario and Challenges? 

The growth of NBFCs is estimated to be in the range of 15-17% in the next two fiscals. This is not as fast as in the past, but quite stable. The main goal of this growth will be to control risks and maintain balance. 

The most important aspect is to maintain asset quality. It is important to keep a close eye on how household debt is growing, with the pressure on unsecured loans and microfinance. 

The challenges include- 

• increasing compliance burden, 

• competition with banks and other NBFCs, 

• and the rising cost of borrowing. 

But there are also opportunities. NBFCs are now increasingly using digital technology. Mobile-based loans, digital verification, and new fintech partnerships are making their work easier. So, opportunities are opening for entry into new sectors like MSME financing. 

Finally, the future of the NBFC sector will not depend on aggressive growth but on sustainable and controlled improvement. NBFC business enthusiasts must secure their NBFC registration on time to remain compliant. 

Conclusion 

The NBFC sector has become an integral part of the Indian financial system. Although growth is not as rapid as before, a growth rate of 15-17% over the next two years is quite positive. This will help in controlling risks and pave the way for more stable and long-term growth. Now, NBFCs need to maintain a strong balance sheet, employ sound risk management, and leverage new technologies to move forward. 

The right direction is very important in this new phase of growth. Enterslice offers expert advice for the NBFC sector, from NBFC compliance and funding strategies to risk management to digital transformation. If you want your NBFC to get ahead of the competition, then join Enterslice today. 

Common Questions About NBFC Growth in India