look news india
A very important and big estimate has come to light regarding the business and loan book of Indian Non-Banking Financial Companies (NBFCs). According to a recent report, the total asset under management (AUM) of the country’s NBFC sector may jump to touch the historic figure of Rs 93 lakh crore by the financial year 2027-28 (FY28). This scope of NBFCs is expanding rapidly due to the increasing demand for credit (loans) in the Indian economy and the boom in the retail sector. However, amidst this amazing pace, an aspect has also come to light which has raised lines of concern on the foreheads of banking regulators and financial analysts.
There will be huge growth in NBFC sector on the basis of retail and MSME loans The biggest reason behind this tough estimate is believed to be the continuously increasing demand for loans among the middle class and small businessmen of the country. Compared to traditional banks, NBFCs provide loans on easy terms and through digital means, making them extremely popular among customers. These companies are aggressively expanding their portfolio in MSME loan, vehicle loan, and personal loan segments. It is believed that in the coming years, increasing financial inclusion in rural and semi-urban areas will further strengthen the business of these companies.
The increasing pace of unsecured loans increases the concern of the Central Bank Amidst this huge and record breaking growth, the biggest risk is emerging in the form of unsecured loans i.e. loans given without any guarantee. For some time now, NBFCs have been disbursing loans very rapidly in unsecured loan segments like personal loans, consumer durable loans and credit cards. Experts say that if there is any slowdown on the economic front in the coming time, then the risk of these unsecured loans going under is highest. This is the reason why the Reserve Bank of India (RBI) is also continuously instructing NBFCs to strengthen risk management in their loan portfolio and curb unsecured loans.
Impact on asset quality and margins may be visible in the future Financial experts believe that the balance sheet size reaching Rs 93 lakh crore certainly reflects the country’s economic progress, but companies will have to keep a close eye on their asset quality (NPA). Even the slightest laxity on the unsecured loan front can increase the bad debts of these companies, which will have a direct impact on their profit margins and their ratings in the stock market. In the coming days, it will be very interesting to see how NBFC companies maintain a balance between this fast pace of growth and loan quality while adhering to the stringent rules of RBI.