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India’s personal loans soar, boasting a remarkable 33% CAGR over four years: Mazars in India NBFC report

New Delhi, Personal loans in India have exhibited an impressive Compound Annual Growth Rate (CAGR) of 33% over the last four years, surpassing overall credit growth. Notably, there was a significant 20.8% increase in credit growth between September 2022 and 2023. This remarkable upswing was primarily driven by a surge in personal loans (32.5% growth) and agricultural lending (43.7% growth), as highlighted in Mazars in India’s latest NBFC tracker report.

The comprehensive report offers profound insights into the Non-Banking Financial Company (NBFC) sector, set against the backdrop of substantial regulatory changes initiated by the Reserve Bank of India (RBI) in 2023. It delves into key trends and metrics shaping the NBFC landscape, providing clarity on nuanced shifts brought about by regulatory actions.

Rahul Singhal, Subject Matter Expert, S.N. Dhawan & CO LLP, expressed, “In 2023, the RBI’s strategic regulatory actions prompted pivotal shifts in the NBFC landscape, compelling a recalibration for heightened supervision and adjusted risk weights. As we approach 1 April 2024, the impending IT governance directives introduce a crucial cybersecurity imperative, essential for ensuring operational resilience in an increasingly digital financial ecosystem.

Casting an eye to 2024, the NBFC sector is thrust into a dynamic landscape, steering through challenges and seizing growth opportunities presented by digital transformation and innovative funding mechanisms. Our NBFC tracker report illuminates the indispensable role of robust risk and governance frameworks, alongside adaptability to regulatory changes, in sculpting a resilient and vibrant future for the sector”.

Sectoral deployment of credit by NBFCs

The NBFC sector saw a significant 20.8% increase in credit growth between September 2022 and 2023, driven mainly by a surge in personal loans (32.5% growth) and agricultural lending (43.7% growth). Over the past four years, personal loans grew at an impressive CAGR of 33%, outpacing the overall credit growth. Recent risk weight adjustments for retail loans may affect future credit growth. In terms of market share, personal loans increased by 2.3%, and agricultural loans rose to 1.9% in September 2023, up from 1.7% the previous year.

GNPA – Gross Non-Performing Assets

In the first half of FY24, NBFCs saw a drop in their GNPA ratio across all sectors. Overall, the GNPA ratio decreased to 4.6% in September 2023 from 5.9% in September 2022. Personal loans had the lowest GNPA ratio at 3.6% by September 2023. Private NBFCs still face a high GNPA ratio of 12.5% in industrial advances, representing 21.6% of the total NBFC sector GNPA. All sectors showed improvement in their GNPA ratios by September 2023, with the services sector witnessing the most significant drop to 8.1%.

NBFCs’ sources of funds

As of September 2023, borrowings remained the primary funding source for NBFCs. Compared to September 2022, NBFCs’ reliance on borrowing increased by 1.1% to reach 62.1% in September 2023, while the share of share capital and reserve and surplus slightly declined to 27.9% from 28.5% in September 2022. Within borrowings, banks and debentures were the major sources of funds, with NBFCs raising 25.0% through bank borrowing and 19.6% through other debentures by September 2023.

Credit risk in NBFCs

The RBI conducted stress tests on 146 large NBFCs to assess credit risk resilience across three scenarios: baseline, medium, and high risk. As of September 2023, these NBFCs maintained a 24.4% capital adequacy ratio and a 3.1% GNPA ratio. In the baseline scenario, GNPA was 3.8%, while in medium and high-risk scenarios, it rose to 5% and 6.3% respectively. The number of NBFCs failing to meet the 15% regulatory standard increased to 9 for baseline, 15 for medium risk, and 21 for high-risk categories.

Top NBFCs and a track of their performance

In Q2 FY24, top NBFCs managed IN₹7,65,753 crores in assets, up 18.2% from IN₹6,47,855 crores in Q2 FY23. Capri Loans led with a 59.1% AUM growth to IN₹12,358.5 crores, followed by Satin Creditcare and Bajaj Finance with 38.6% and 32.9% growth respectively. Top NBFCs saw a notable increase in average return on assets (ROA) from Q2 FY23 to Q2 FY24, rising by approximately 0.5% to reach around 3.5% in Q2 FY24.

In Q2 FY24, the average capital adequacy ratio for top NBFCs improved by 1.7%, reaching 29.7% from 28.0% in Q2 FY23. PNB Housing Finance saw the most significant increase, rising by 6.3% to 30.4%, followed by Capri Loans with a 6.2% improvement.

Additionally, majority of the NBFCs saw an improvement in their GNPA ratio during Q2 FY24. PNB Housing Finance led with a 4.3% improvement compared to Q2 FY23, followed by REPCO with a 1.6% improvement.

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