Non-Bank Lenders’ Share In Credit To Rise Despite State-Run Bank Recap

Non-bank lenders are expected to increase their share in the credit pie over the next three years as strong models, relations with clients and technology will help them compete with resurgent public sector banks after the government’s fund infusion.

The combined share of non-banking finance companies and housing finance companies will rise 300 basis points to 19 percent in three years through March 2020, Crisil Ratings estimates. A large part of this growth is expected to be driven by wholesale credit.

Crisil forecasts non-banks to grow at an annualised rate of 18 percent till 2020. Renewed competition from public sector banks after the recap is expected to remain limited to vehicle finance and home loans to the salaried.

The government plans to infuse Rs 2.11 lakh crore into state-run lenders struggling with mounting bad loans. About two-thirds of it will come by issuing recapitalisation bonds. The rest, including Rs 18,000 crore already allocated under the Indradhanush plan, will come through budgetary support over two financial years.

While large, traditional segments of home and auto loans will continue to grow steadily, real estate and structured credit, as well as unsecured loans will grow at a faster pace, Crisil said.

The rating agency expects wholesale credit of non-banks to grow at a 21 percent compounded annual rate to touch Rs 6 lakh crore by year ending March 2020, driven by a growth in structured credit, real estate financing and opportunities in roads.

The share of wholesale finance in the total non-bank credit is expected to rise from 12 percent in 2014 to 19 percent by 2020, it said. Non-banks have managed their wholesale portfolio asset quality better than banks as they focused on relatively lower risk sectors like roads and renewables, Crisil said.

The opportunity in realty and structured credit has increased after the implementation of Real Estate Regulation Act and rising demand for mid-corporate promoter financing, Gurpreet Chhatwal, president at Crisil Ratings, said in a media teleconference. In infrastructure financing, highways offer a large and growing opportunity, he said.

Crisil expects the momentum to continue for housing finance companies, growing at an annualised rate of 20 percent over the next three years. While unsold inventories in premium housing may restrict growth as investment demand remains low, the affordable segment is expected to grow at 30-35 percent due to unmet demand and the government’s push. While their overall asset quality remains healthy with gross bad loans at about 1 percent, non-performing assets show a rising trend for the self-employed segment, it said.

Vehicle finance is expected to pick up after the challenges of demonetisation, shift to Bharat State-IV norms, introduction of Goods and Services Tax and the National Green Tribunal’s ban on diesel vehicles.

Auto loans are expected to grow at 15 percent CAGR to reach Rs 5.2 lakh crore by 2020 compared to a 12 percent rise in the last three years. While banks are expected to focus on the car loans, Crisil expects NBFCs retaining their share in commercial vehicle financing.