(MENAFN- KNN India)
New Delhi, Dec 27 (KNN) In a comprehensive analysis of the non-banking financial sector, the Reserve bank of India's latest trend and progress report reveals robust growth in non-banking financial institution(NBFC) lending, with loans and advances expanding by 18.5 percent in FY24, surpassing the previous year's growth of 17.4 percent.
This growth was primarily driven by upper-layer NBFCs, while middle-layer NBFCs experienced slower growth due to a contraction in unsecured lending.
The sector's lending profile shows a strong preference for long-term credit, with over two-thirds of aggregate credit exposures and borrowings extending beyond 12 months as of March 2024.
Industry and retail sectors dominated the loan portfolio at 71.2 percent, followed by agriculture and MSME sectors. Within industry-specific lending, the power sector claimed a substantial 75.2 percent share, largely attributed to government-owned NBFCs.
Vehicle financing continues to be a cornerstone of NBFC operations, growing faster than bank lending in this segment and representing 34.7 percent of the retail portfolio. Together with gold loans and microfinance, these three segments constituted 56.7 percent of the retail portfolio by March 2024.
The MSME sector maintained steady growth, capturing 11.7 percent of the total loan portfolio, with further expansion anticipated through the unified lending interface.
On the funding front, NBFCs have diversified their sources in response to increased risk weights on bank lending. While bank borrowings remained the primary funding source, their share moderated from 43.1 percent to 42.7 percent between March 2023 and March 2024.
NBFCs increasingly turned to market instruments, with non-convertible debentures showing strong growth and over 80 percent of issuances carrying high ratings (AAA or AA). Commercial paper borrowings also saw an uptick.
The sector has also tapped into international funding sources, with foreign liabilities accounting for 8.8 percent of aggregate liabilities by March 2024, predominantly through external commercial borrowings which represented 57.5 percent of foreign funding.
Asset securitisation has emerged as an important funding avenue, particularly for liquidity management purposes.
The financial health of the sector remains robust, with the capital to risk-weighted assets ratio standing at 26.1 percent as of September 2024, well above the regulatory requirement of 15 percent.
Asset quality has also improved, with the gross non-performing asset ratio declining to 3.4 percent, indicating strong risk management practices across the sector.
(KNN Bureau)
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