NBFC margins may shrink 25-40 bps in loan against property, unsecured books: ICRA

NBFCs may see 20-40-bps rise in cost of funds.

Non-bank financiers may come under pressure, ratings agency ICRA said in a webinar on August 21, estimating a 25 to 40 basis points decline on margins in loan against property (LAP) and unsecured books.

“We could see some compression in the margins of the LAP and unsecured book to the tune of 25-45 bps for the NBFCs (non-banking financial companies). Further, there will be a slowdown in the unsecured book, which was earlier supporting yields and margins,” AM Karthik, senior vice-president and co-group head for financial sector ratings at ICRA, said.

He added that the slowdown may translate to a 20-40-bps rise in the cost of funds of the non-banks.

Manushreee Saggar, senior vice-president of the ratings agency, said that margins are expected to stay under pressure as the cost of funds and operating expenses of the shadow banks would remain high.

In the recent past, some non-bank lenders expanded their partnerships for their unsecured books. L&T Finance, for example, on August 20 announced a tie-up with fintech major CRED to offer unsecured personal loans. Tata Capital and Lendingkart partnered the next day to co-lend unsecured business loans to medium small and micro enterprises (MSMEs).

On funding issues for the non-banks, ICRA said that the NBFCs are expected to face headwinds related to funding availability, which is likely to impede their growth. The agency said that the growth of their assets under management (AUM) will ease to 13-15 percent in FY2025 from 18 percent last year. “Key challenges for meeting growth expectations, however, would be in accessing the required debt funding over and above the refinancing of existing debt,” it said.

Slowing direct bank credit will push the NBFCs towards capital market instruments. This comes after the Reserve Bank of India (RBI) had expressed concerns on banks’ aggressive lending to the shadow banks. Borrowing instruments like non-convertible debentures and external commercial borrowings are expected to see higher participation from the non-bank lenders on the back of RBI deliberations.