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ICRA on Wednesday said non-banking financial companies (NBFCs) will face challenges related to availability of funding, which is likely to hamper growth as against the robust expansion in the last two fiscals. The credit rating agency has estimated that asset under management (AUM) growth of NBFCs will decelerate from 18% in FY24 to 13-15% in FY25. The sector’s AUM, which stood at around ₹47 lakh crore in March 2024, will cross ₹50 lakh crore in FY25.
According to the rating agency, the main challenges to meet growth expectations will be in accessing the necessary debt financing in addition to refinancing existing debt. It further said the estimated incremental debt financing for AUM expansion is ₹5.6-6 lakh crore for FY25.
AM Karthik, Senior Vice President and Co-Group Head Financial Sector Ratings, ICRA, said, “The banking sector, the key lender to the NBFC segment, is expected to register an overall credit expansion of around 12% in FY25, resulting in incremental bank credit of around ₹19-20.5 lakh crore. This is, however, lower than the credit expansion of ₹22 lakh crore in the previous fiscal.”
“Furthermore, the impact of tightening regulatory norms for bank funding to the sector is already visible in the last few months. Direct bank lending to NBFCs grew marginally to Rs 7,500 crore in Q1 FY25 as against Rs 92,000 crore in Q1 FY24,” he added.
ICRA said the weighted average cost of funds is estimated to increase by 20-40 bps over FY24 levels due to deposit challenges faced by banks and pressure on NBFCs to diversify their lending profile.
ICRA also expects the overall retail asset credit quality (gross stage 3) of NBFCs excluding housing finance companies (NBFC-HFCs) to weaken by 30-50 bps in the current fiscal. However, the credit quality of NBFC-HFCs and NBFC-infrastructure finance companies (IFCs) will remain range-bound with expectations of a 10-20 bps improvement from March 2024 levels.
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