Non-banking financial companies (NBFCs) will witness headwinds related to funding availability, which is likely to impede growth vis-à-vis the robust expansion in the last two fiscals, ICRA said on Wednesday. The credit rating agency projected the growth of NBFCs’ asset under management (AUM) to ease to 13-15% in FY25 from 18% in FY24. Standing at about ₹47 lakh crore in March 2024, the sector’s AUM is set to cross ₹50 lakh crore in FY25, it added.
According to the rating agency, the key challenges for meeting growth expectations would be in accessing the required debt funding over and above the refinancing of existing debt. The estimated incremental debt funding for AUM expansion is ₹5.6-6 lakh crore for FY25, it further said.
“The banking sector, a key lender to the NBFC segment, is expected to register an overall credit expansion of around 12% in FY25, resulting in an incremental bank credit of about ₹19-20.5 lakh crore. This, however, is lower than the ₹22 lakh crore credit expansion in the last fiscal,” said A.M. Karthik, Senior Vice President & Co-Group Head Financial Sector Ratings, ICRA.
“Further, the impact of tightening regulatory norms for bank funding to the sector, is already visible over the last few months. Incremental direct bank credit to the NBFCs in Q1 FY25 was a modest ₹7,500 crore compared with ₹92,000 crore in Q1 FY24,” he added.
Deposit challenges faced with banks and the push for the NBFCs to diversify their borrowing profile is likely to see the weighted average cost of funds projected to increase by 20-40 bps over the FY24 levels, ICRA said.
ICRA also expects the overall retail asset loan quality (gross stage 3) of the NBFCs, excluding housing finance companies (NBFC-HFCs), to weaken by 30-50 bps in the current fiscal. The NBFC-HFCs’ and the NBFC-Infrastructure Finance Companies’ (IFCs) loan quality, however, shall remain range-bound with expectations of 10-20 bps improvement from March 2024 levels, it added.
