India's NBFC sector faces moderate growth in FY23 due to regulatory measures: CRISIL

India's NBFC sector is expected to record a moderate growth of 16-18% in the current fiscal because of relatively slower expansion on unsecured retail loans due to the recent regulatory measures issued by the RBI, CRISIL Ratings said on Wednesday.

Assets Under Management (AUM) of Non-Banking Financial Companies (NBFCs) are set to log a healthy 14-17% growth next fiscal on the back of continued strong credit demand across retail loan segments, it said in a release.

"Growth may be moderately lower than 16-18% expected in the current fiscal, as unsecured retail loans, the fastest growing segment in the NBFC AUM pie so far, are likely to see a relatively slower growth as NBFCs recalibrate their strategies due to the recent regulatory measures issued by the Reserve Bank of India," it said.

Going forward, diversification in product offerings and funding profile will be key constituents of their growth strategy, it added.

The rating agency further said retail credit growth continues to be driven by sound underlying macro and micro factors.

"Private consumption is trending well above the long-term average as retail spending on homes, vehicles and consumer durables remain strong. And backed by healthy balance sheets, NBFCs have been agile to ride this retail credit-growth wave," it said.

Speaking at a webinar, CRISIL Ratings Managing Director Gurpreet Chhatwal said the recent regulatory measures are targeted at unsecured retail loans and do not impact the secured asset classes where growth is expected to be steady.

"Importantly, the regulatory changes do not impact HFCs," he said.

According to the agency, the two largest traditional segments of home loans and vehicle finance now comprise 25-27% each of the NBFC AUM.

Both segments are expected to report steady growth.

In the home loan segment, growth of 12-14% next fiscal will be driven by HFCs' focus on affordable home loans (ticket sizes of less than Rs 25 lakh), while vehicle finance is expected to grow 18-19% this fiscal and sustain 17-18% growth during 2024-25 on the back of solid underlying-asset sales.

"Unsecured loans is now the third largest segment in the NBFC AUM pie. And this segment is likely to see a moderation in growth due to the regulatory measures which affect NBFC AUM growth on both their asset and liability sides on three fronts," said Chhatwal.

As per CRISIL Ratings' estimates, bank loan borrowing costs for NBFCs could increase 25-50 bps. However, its impact on the balance sheets of NBFCs will be lower and linked to the extent of their reliance on bank funding.