The Non-banking financial companies (NBFCs) are expected to consolidate their position further in next few years, even with massive recapitalization program for public sector and raise their share to 19-20% by 2020, according to rating agency Crisil.
In 2017 the share of NBFCs, in total credit across India increased to 16% including housing finance companies (HFCs) from 13% in 2013.
The share of public sector banks declined from 59% to 51 % while the share of private sector banks increased from 18% to 23% (during the same period, according to CRISIL data).
Senior director, Crisil Research , Krishnan Sitaraman said “We expect their (NBFCs’) share to continue growing”.
He said that the key drivers for the growth of NBFCs are responsiveness to customer demand, adaptability, local knowledge and innovation.
He further mentioned that the main sectors that will contribute to the growth of NBFCs are housing, vehicle loans, vehicle finance, real estate and structures credit and MSME loans.
The major challenge that obstruct the growth of NBFCs is the highest cost of funds vis-à-vis the banks. Though sources of funds have been diversified and impact on their profitability minimized by NBFCs.
The contribution of capital market borrowing in the NBFCs have been increasing from past 3-4 years and also raising larger share of funds through bonds, NCDs, CPs and securitization.
Not only this it is bringing capital market investors and thus reducing the dependence on bank for borrowings, which has helped them in reduction of cost of borrowings, he added.
He further explained that role of capital market borrowing has been the main reason behind the NBFCs ability to maintain the profitability despite of the fact that lending rates are being under pressure because of competitive landscape.
He further added that NBFCs have been able to raise equity capital as well from external investors including PE funds and also the share of bank borrowings in their overall borrowings for some of the larger NBFCs has come down from 40% to 30%.