NBFC Asset Growth to Moderate in FY25, NPAs Likely to Rise: Icra

Mumbai, Aug 21 (PTI) The non-banking finance companies' (NBFC) growth in assets under management will moderate in FY25, and the year will also witness an uptick in dud assets, a domestic rating agency said on Wednesday.

The NBFCs operating across various segments are estimated to show assets under management (AUM) growth of 13-15 per cent in FY25 from 18 per cent in FY24, largely impacted by regulatory measures on restricting bank lending to such entities and also concerns over unsecured and top-up loans, Icra Ratings said.

The sector is also expected to witness a 0.30-0.50 per cent increase in delinquencies during the year, and the agency's group head Karthik Srinivasan told reporters that the "best days on delinquencies are behind us".

The non-performing assets (NPAs) will inch up due to factors like high growth in the last two years, some borrowers being over-leveraged and also sloppy assessment practices in some entities, the agency said.

The sector needs up to Rs 6 lakh crore in funding for sustaining the credit growth in FY25, Srinivasan said, adding that capital is not a constraint but companies will have to look at sources beyond the mainstay of bank funding for the liabilities.

Direct lending from banks will come up to Rs 1.8 lakh crore, while the rest will be from other routes like securitisations and issuing non-convertible debentures, among others, the agency said, adding that banks have an important role to play in the other two as well.

Srinivasan said external commercial borrowings are more expensive than the domestic money, and also added that some entities may also get funds from multilateral agencies keen on upping their exposures to India.

He said the November 2023 circular increasing the risk weights has had the intended impact of reducing the bank lending to the sector, the agency said, adding that the impact of this will be felt in FY25.

When asked about the unsecured lending circular and its impact, an official said that the industry was going slow on such loans even before the notification and the disbursements were slower in the March and June quarters.

To a question on the top-up loans, where the Reserve Bank of India Governor Shaktikanta Das expressed concerns, the Icra official said it is a challenge to monitor the end use of the funds but the industry is attempting to get some hold over it lately.

Top-up loans account for up to 10 per cent of the overall outstanding for the housing finance companies, and credit risk is not the issue with it, the official said, adding that there can be a moderation in such activities because of the unease.