Indian NBFCs Set to Keep Rising In 2023

The world seems to be recovering from the aftermath of the challenges posed in the last few years. Overall despite the challenges, India has emerged as a bright spot in terms of economic growth amidst an outlook of global slowdown. Recently, The World Bank has reported that India is better positioned to navigate global headwinds and handle global spillovers, as compared to other major emerging economies. The uptick in demand during the festive season is another reason which makes us optimistic.

CRISIL recently reported that riding on macroeconomic tailwinds, NBFCs are expected to see their AUM grow 11-12% — a four-year high — to Rs 13 lakh crore by the end of this fiscal. Also, it is heartening to see that the RBI and policymakers recognise the contribution of NBFCs in supporting real economic activity and meeting the credit demand, especially reaching the unbanked. The recent RBI Scale based norms is another welcome step for the industry that will elevate the status of NBFCs in line with several other public sector NBFCs. Under these revised norms, we expect to attain more operational flexibility to meet the increasing credit demand and aid India’s economic growth.

A large number of our population remains largely unfamiliar with technology and face unique challenges in financial literacy. When it comes to serving the underbanked, Indian NBFCs and fintechs are leveraging technology and innovation to drive the financial inclusion agenda.

According to ICRA’s recent report, in 2023 non-bank lenders will focus on reviving growth by improving asset quality supported by increasing retail demand and liquidity. As part of the same, MSME sector and other developing sectors will witness increased participation from NBFCs. Also, with the introduction of 5G services in the country more NBFCs will tap into exploring Artificial Intelligence and Machine Learning for offering services or fullfledged applications.

Gold loan industry has now gained respectability, as compared to 15-20 years back, and the persisting competition in the gold loan industry suggests it is a growing industry. While the sector will continue to face competition from banks, I believe NBFCs will continue to play a vital role due to its deeper reach, ability to offer more flexibility, personalised services and innovative digital solutions. Gold loans have played an important part during the pandemic and will continue to be an important source of credit to MSMEs, agri sector, small businesses, unorganised sector and this is also evident from the steady demand for gold loans.

To keep this momentum of growth going in 2023 as well, it is important to address the key challenges faced by the NBFC sector. One such challenge is the recent revision of securitisation norms by RBI which state that loans with residual maturity of less than 365 days cannot be securitised. We do believe that this can have an impact on the level of securitisation, as gold loans, MFI loans are of shorter duration.

In a scenario of rising interest rates and intense competition from banks, NBFCs will further need to focus on their pricing power to maintain profitability and also focus on higher-yield segments for growth. Needless to say, NBFCs with stronger business models, strong capital adequacy, strong underwriting capabilities and focus on digital strategy will continue to perform better and grow stronger in years to come.

In 2023, NBFCs will play a larger role in supporting the socioeconomic construct of the Indian economy. The opportunity for credit penetration still remains very high in India. The NBFCs can set a new benchmark by tying up with fintechs and introducing new business models with personalised offerings.