Funding ceiling may hamper NBFCs' loan growth: Report
May Lead to Margin Compression for Sector This Fiscal
- Mumbai: With most non- bankers reaching the maximum funding cap from banks, their projected 16% loan growth may be impacted, leading to margin compression for the sector this fiscal, according to a report.
- Bank funding to NBFCS has grown rapidly to Rs 13.1 lakh crore in February 2023 from a low Rs 3.9 lakh crore in FY17, growing at a CAGR of 22%, which is double the overall bank credit growth, an India Rating report said.
- The rising share of bank funding has helped NBFCS offset the sluggishness in capital markets, which remained lukewarm during the pandemic and pricey during the first nine months of FY23, it added.
- Non-banks, including housing financiers, will face increased funding challenge es in FY24, which is likely to impact their loan growth target that was earlier projected report. to clip at 16%, the agency said without quantifying the impact or how much will be the loan growth.
- According to the agency, the only silver lining is the exit of the largest NBFC, the mortgage major HDFC, with its soon-to-be-completed merger with HDFC Bank as its exposure will move out from the classification under NBFCs.
- Banks' exposure to HDFC is a whopping Rs 1.5 lakh crore, which is around 11.4% of the banking sector's total exposure to non-banks. The overall exposure of banks to NBFCS was a high 41% as of September 2022, according to the RBI's financial stability report
- Another reason for the likely loan growth trouble is the rising interest rates, which have gone up by 250 bps since May 2022. Funding is likely to become more expensive and restricted as lenders realign their pricing as well as funds allocation, factoring in their own increased cost of funds and constraints of their balance sheets, the report said.
- Banks and capital markets together accounted for as much as 73% of the funding sources for NBFCs in the first nine months of FY23.
- Many banks, mostly public sector ones, are approaching their internal exposure limits. While banks may re visit their exposure limits in FY24, NBFCs' loan growth and high sectoral concentration are likely to weigh on their minds.