NEW DELHI: After three years of single-digit growth, non-banking financial companies (NBFCs) are expected to see their assets under management (AUM) increase by 11-12%, a four-year high, to reach 13 trillion by the end of this financial year, against a backdrop of favorable macroeconomic winds, the rating agency Crisil said on Monday.

The disruption of business and economic activities amid Covid-19 had limited the growth of assets under management to 2-4% in fiscal years 2020 and 2021, and 5% in fiscal year 2022.

“Even if growth hits double digits again, it will be below pre-pandemic levels. Indeed, AUM had recorded a 3-year compound annual growth rate (CAGR) of nearly 20% until in FY2019. The intense competition from banks and the scenario of rising interest rates will limit the competitiveness of NBFCs in certain segments, leading them to focus on high yield segments for growth,” said Krishnan Sitaraman, Senior Director and Deputy Director of Ratings, Crisil Ratings.

Auto finance, which takes the lion’s share (46-50%) of the NBFC AUM pie, will see growth pick up to 11-13% this fiscal year from 3-4% in the past two, a report said. the agency said in its report. Used vehicle finance, with its higher yields, will experience higher growth and drive NBFC’s volume in vehicle finance. Improved sales of underlying assets will also contribute to growth in assets under management in this segment, the report adds.

Strong demand from the infrastructure sector along with fleet replacement demand and a focus on last-mile connectivity will drive commercial vehicle sales, while pent-up demand and new launches will boost car and vehicle sales utilities. However, competition from banks and the scenario of rising interest rates will take advantage of NBFCs in the new vehicle financing segment and allow banks to gain market share in this space.

According to Ajit Velonie, Director of CRISIL Ratings, “With NBFCs focusing on the higher yielding segments, unsecured loans, which have the second largest share (16-20%) in the NBFC AUM pie, may be the only segment to touch pre-Covid era growth of 20-22% for this fiscal year NBFC’s cautious approach had led to lower assets under management for this segment in fiscal 2021, while the Fiscal 2022 saw a V-shaped recovery.”

Unsecured loans include consumer loans (personal loans and sustainable consumer loans) and business loans to small and medium-sized enterprises (SMEs). Consumer lending will be supported by increased retail spending on consumer durables, travel and other personal consumption activities, while business lending will benefit from macroeconomic tailwinds given the expected growth 7.3% of gross domestic product (GDP) for this fiscal year.

Home loans, another NBFC product line aimed at SMEs, are also expected to grow 10-12%, although competition is also maintaining higher growth in this space, CRISIL said.

Gold loans are expected to reach their steady growth rate of 10-12%, supported by demand from micro-enterprises and individuals – to finance working capital and personal needs respectively.

As other segments pick up, wholesale funding, which has seen a number of players exit the market in recent years, will continue to lag as assets under management decline. While the rebound in real estate sales and the buoyancy of the infrastructure space following various government initiatives will create opportunities in the wholesale sector, these will be largely exploited through the alternative investment funds route. , rather than balance sheets, as NBFCs remain risk averse, the report said.

Overall, while green shoots are visible for the NBFC sector, higher than expected interest rates and inflation remain key things to watch, Crisil said.

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