According to a report on Non-Banking Financial Companies (NBFCs) by Assocham and ICRA, unsecured loans offered by NBFCs experienced significant growth from fiscal year 2017 to 2024. These loans expanded at a compound annual growth rate (CAGR) of approximately 32%. Although this growth is calculated from a lower base, it is double the growth rate observed in retail secured loans, such as vehicle, home, gold, and property loans, during the same period.
Increase in Share of Unsecured Retail Loans
The report estimates that the share of unsecured retail loans in NBFCs has increased to 14% of the overall NBFC credit. If we exclude the large loans provided by lending institutions for infrastructure projects, the share of unsecured loans would be 23% of the NBFC portfolio. This marks a significant increase from the 5% share observed in March 2016.
Factors Driving Growth in Retail Unsecured Loans
The growth in retail unsecured loans can be attributed to various factors. Some of the key drivers include the expansion of microfinance, personal and consumption loans, and unsecured loans for small and medium enterprises (SMEs). These loan categories experienced higher growth rates, leading to an overall growth in retail loans of 18% CAGR during the period from fiscal year 2017 to 2024.
Steady Improvement in NBFCs’ Market Position
In addition to the growth in unsecured loans, NBFCs have steadily improved their market position overall. They achieved a healthy CAGR of around 15% during the period from fiscal year 2017 to 2024. This growth rate is higher than the 11% CAGR achieved by banks during the same period.
According to Karthik Srinivasan, Senior VP at ICRA, “NBFCs registered a robust expansion in the last two financial years, boosting their position in the overall financial ecosystem. However, their improved systemic importance and higher interconnectedness, especially with the banking sector, have led to increased regulatory oversight and actions in the recent past.”