NBFC growth to be hit due to rising unsecured loan stress
Unsecured loans like micro finance, personal loans, credit cards and business loans will continue to be a source of stress for non bank financial companies (NBFCs) this fiscal year as borrowers’ repayment capacities are likely to be hit due to higher interest rates, rating agency ICRA said.
This rising stress is expected to cause a slowdown growth in microfinance loans by 10% to 12%, and a 19% to 21% in other unsecured loans. The stress will also spill over to secured loans like small mortgages, vehicle loans and other small ticket loans, the rating agency said.
High credit growth in the previous two years has potentially resulted in over leveraging in some assets, and a slower credit growth due to higher risk weights by the regulator, can damage the refinancing ability of some borrows.
“The NBFCs in unsecured and digital lending will face a higher squeeze in funds compared to others as slower credit growth often results in weaker borrows falling behind in their repayment schedule, increasing the pressure on asset quality for lenders,” said AM Karthik, senior vice president, financial sector ratings at ICRA.
The slowdown in this fast growing business will also impact NBFC profitability. ICRA expects NBFC net interest margins to fall by 20 basis points to 40 basis points. One basis point is 0.01 percentage point. Demand for credit will be strong, but regulatory guidelines will prevent overheating in some segments, which will be the reason for slower growth, ICRA said.
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