NBFCs may grow faster than public banks in next three years

Non-banking finance companies' (NBFCs) credit share of overall loans is likely to rise by 300 basis points to 17.6% in the next three years. 

According to a Crisil report, the innovative product launches have resulted in robust diversification, that as per their forecasts, the products that constituted 16% of NBFC advances in FY12 will constitute 40% by FY19. 

The NBFCs may grow faster as public sector banks, facing asset quality challenges, remain circumspect on lending, it said.

A key challenge for them will be to manage competition from private banks and simultaneously balance risk and profitability. Also, as per the report, there will be a short term impact of demonetisation for the NBFCs because of access to undrawn lines of credit from banks and liquid assets.

Gurpreet Chhatwal, Business Head, Crisil Ratings, said, "Domestic NBFCs have leveraged their unique strengths and some of them have scaled up to become world-class institutions. NBFCs with assets of over 40,000 crore more than trebled to 10 from 3 in the last four fiscals."

The report said that in the past five years, NBFCs have raised Rs 26,000 crore equity. With the pick up in securitisation and new avenues like masala bonds, will further strengthen their resource profile. 

Also, for NBFCs, the borrowing cost differential with banks has narrowed by approximately 50 basis points in the last four years.