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NBFCs Co-lending Portfolio Crosses Rs 1 Lakh Cr; Projected To Grow By 35-40% Annually: CRISIL

Updated: Apr 09, 2024 02:02:04pm

NBFCs Co-lending Portfolio Crosses Rs 1 Lakh Cr; Projected To Grow By 35-40% Annually: CRISIL

New Delhi, Apr 9 (KNN) After more than 5 years since its inception, the co-lending assets under management (AUM) for non-banking financial companies (NBFCs) in India is approaching a staggering Rs 1 lakh crore milestone.

This burgeoning sector is projected to maintain impressive growth momentum of 35-40 per cent annually over the medium term, driven by rising interest from both NBFC and banking partners.

A comprehensive CRISIL study analysing around 100 major NBFCs, representing over 90 per cent of the industry's total AUM, reveals these promising trends. Notably, only about a third of these finance companies currently have active co-lending portfolios, indicating substantial room for further expansion.

“Co-lending presents a mutually beneficial arrangement for NBFCs and banks alike, enabling risk and reward sharing,” explained Ajit Velonie, Senior Director at CRISIL Ratings.

“For NBFCs, especially mid-sized and smaller players, it facilitates access to bank funding and diversifies their funding sources – a crucial advantage given recent increases in risk weights for bank lending to NBFCs. The model also supports capital-efficient growth for NBFCs. Conversely, banks gain optimal access to niche customer segments and geographic markets while meeting priority sector lending targets,” Velonie added.

Currently, personal loans comprise approximately one-third of the overall co-lending AUM, trailed by housing loans at around 20 per cent, unsecured MSME loans and gold loans each constituting around 13 per cent, while secured MSME loans (including loan against property) and vehicle loans make up the remaining 20 per cent.

While all asset classes under the co-lending umbrella are poised for growth, the pace of expansion for personal loans is expected to moderate compared to recent highs.

This adjustment follows the Reserve Bank of India's revision, increasing the risk weight for unsecured consumer credit to 125 per cent from the previous 100 per cent. Consequently, the growth rate for unsecured loans is projected to decelerate to 25-35 per cent in fiscal 2025, down from an estimated 35 per cent in fiscal 2024.

“With recalibrated growth for personal loans due to increased risk weights, their share of the co-lending book could decline in fiscal 2025, while MSME and home loans are likely to gain a larger proportion,” stated Malvika Bhotika, Director at CRISIL Ratings.

“This shift aligns with the government's emphasis on boosting the MSME sector's GDP contribution and the 'Housing for All' initiatives. Overall, co-lending will continue attracting heightened traction as NBFCs seek alternative funding sources to meet the robust demand for retail loans,” Bhotika added.

The growth trajectory will also be reinforced by the controlled asset quality witnessed thus far in the co-lending portfolios of banks and NBFCs. Sustaining this asset quality emerges as a critical factor for the long-term success of the co-lending business model, alongside monitoring the evolving regulatory landscape governing this sector.

(KNN Bureau)


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