Considering the recent regulatory developments and commentary, growth momentum in unsecured personal loans category is likely to derail in the coming quarters, ICICI Securities said in a report.
NBFCs are witnessing a very strong credit cycle, both in terms of growth as well as asset quality, but higher credit growth in unsecured personal loans (since Covid) triggered a cause for concern.
Accelerated growth in unsecured loans grabbed the regulator’s (RBI) attention and it has proactively issued a series of measures such as increase in risk weights on unsecured consumer credit, and higher risk weights on banks’ funding to NBFCs, to force lenders to rethink their growth strategies.
Disruption in cashflow for small SMEs, temporary unemployment during the Covid phase and increased focus on lifestyle upliftment led to a surge in credit demand for personal and consumer loans, the report said.
Further, tech upgradation during the Covid phase made credit delivery simpler and also widened the reach for NBFCs.
Hence, many NBFCs have revamped their processes to meet the surge in PL category and many have partnered with fintechs to leverage their balance sheet, the report said.
As a result, credit growth in PL and CL has been significantly higher at more than 100 per cent CAGR for most NBFCs, than the blended growth of sub-20 per cent between FY21 and December 2023.
Cumulative AUM of NBFCs analysed in this report stands at Rs 10 trillion comprising 10 players. These NBFCs had reported more than 20 per cent AUM CAGR between FY21 and December 2023, with unsecured loans growing at much faster clips – for some players, unsecured loan CAGR has been more than 100 per cent during the same period, the report said.
