NBFC Retail AUM To Expand By 12-14% In FY2024, Post Robust Growth In FY2023

The rating agency Icra expects the retail exposures of non-banking financial companies (NBFCs, excluding housing finance companies) to expand by 12 to 14 per cent in the current fiscal with unsecured loans remaining the key driver; this follows the robust growth of 25 per cent in FY2023. 

The assets under management (AUM) exceeded Rs 14 trillion as of March 2023, with growth significantly surpassing expectations. Most asset segments had registered strong credit growth after the subdued performance during the Covid-19 pandemic years (FY2021-FY2022) with unsecured loans expanding the most, though on a lower base. 

It stated that NBFCs have been steadily improving their loan penetration by deepening and expanding/diversifying their target segments.

AM Karthik, Co-group Head, Financial Sector Ratings, Icra said, “Pent-up demand and the improved operating environment for borrowers led to a sharp jump in NBFC credit during the last fiscal. The digitalisation of the borrower onboarding and underwriting process, access to comprehensive borrower data, and leveraging of the established borrower franchise also contributed to the strong growth performance, especially in the unsecured segments."

Karthik added that these factors would remain key growth drivers in the current fiscal too, as there is substantial scope for increasing credit penetration in the country.

The robust growth of 25 per cent in AUM in FY2023 was on the back of the muted compound annual growth rate (CAGR) of eight per cent during the pandemic years (FY2021-FY2022); the AUM had increased at a CAGR of 19 per cent during FY2019-FY2020. 

"The growth revival witnessed since Q3 FY2022 continued sequentially, resulting in a strong overall growth in FY2023 as credit demand remained robust," the rating agency added.

NBFC retail exposure growth in FY2023 was powered by the unsecured segments (excluding microfinance) consisting of personal/consumer loans and unsecured business loans; this segment is estimated to have grown by about 45 per cent in the last fiscal. 

The secured segment, consisting of vehicle loans, gold loans, mortgage-backed loans, etc., grew at a relatively moderate pace of about 17 to 18 per cent during this period. Thus, the share of the unsecured segment of NBFCs increased to about 23 per cent of the retail NBFC AUM from 17 per cent in March 2021. 

Microfinance, which is also unsecured, is estimated at 11 per cent of the retail AUM of NBFCs as of March 2023.