NBFCs' unsecured, MFI portfolio may see some pressure on asset quality: Rating agencies

ICRA highlighted that by leaving these pockets, the larger non-banking and banking sector are looking at steady growth and asset quality trends.

India’s non-banking financial companies (NBFCs) are likely to see some pressure on their asset quality, largely on the unsecured portfolio, said ratings agencies CRISIL and ICRA. “Growth in the traditional segments and asset quality seen steady but the same in unsecured and MFI loans, funding diversification and adherence to regulatory compliance remain monitorable. This may lead to some asset quality pressure,” CRISIL said in a webinar on October 1.

Regulatory measures, being evolving, could have a bearing on the credit quality and will remain monitorable too, it highlighted.

ICRA said that by leaving these pockets, the larger non-banking and banking sector are looking at steady growth and asset quality trends. “The steady improvement in asset quality and credit growth backed sufficiently by fresh equity capital issuances has enhanced credit profiles,” ICRA also said in a separate webinar on October 1.

For banks, CRISIL highlighted that overall credit growth is expected to see some fall compared to last year. “Bank credit growth is expected to remain at 14 percent in fiscal 2025 compared with 16 percent in fiscal 2024. This is due to lower gross domestic product (GDP) growth according to our estimate, and slowdown in unsecured lending and lending to NBFCs,” said Krishnan Sitaraman, Senior Director, Chief Ratings Officer, CRISIL.

Meanwhile, deposit growth of banks, alongside compression of net interest margin (NIM) and profit will be monitorable, CRISIL said.

CRISIL also highlighted that NBFCs may see their asset under management (AUM) growth moderate to 17 percent from 20 percent last year. “Adherence to regulatory compliance and operational controls at the forefront amid evolving regulations governing NBFCs and housing finance companies (HFC),” the agency said.