NBFCs' assets under management expected to grow by 13-14% in FY23-24: CRISIL Ratings

NBFCs to grow AUM 13-14% next fiscal to reach Rs 34 lakh crore, says CRISIL Ratings

The assets under management (AUM) of non-banking finance companies (NBFCs) are expected to grow by 13-14% in the financial year 2023-2024 to reach Rs 34 lakh crore, according to a release by CRISIL Ratings.

The anticipated growth comes after a period of single-digit growth over the last three fiscal years until March 2022.

In a report, the ratings agency stated that the increase in AUM is likely to be fueled by multiple tailwinds, including an improvement in economic activity, stronger balance sheet buffers, and receding asset quality concerns.

As of March 2020, the AUM of NBFCs was Rs. 24.6 lakh crore, which increased to Rs. 25.1 lakh crore in March 2021 and approximately Rs. 27 lakh crore in March 2022, as per the CRISIL report.

The ratings agency added that the growth is expected to be relatively broad-based across the retail segments.

Further, there will be risks to be watch out for such as intense competition from banks, especially in the traditional retail segments, such as home loans and new vehicle finance.

While, the increase in borrowing cost for NBFCs due to rate hike by the central bank limited the competitiveness in some asset classes.

Home loans

For home loans, the biggest segment comprising 40-45 percent of the NBFC AUM, structural factors driving end-user housing demand are intact despite the rising real estate prices and interest rates, ratings agency said.

“That should drive 13-15 percent growth in the AUM for this segment in fiscal 2024,” CRISIL said.

Further, due to competition from the banks due to rising interest rate scenario, housing finance companies may keep losing market share, especially in the urban and the formal salaried segments.

These companies are expected to increase their foothold in the affordable housing space non-urban housing finance segments to enhance volumes.

Vehicle Finance

On the vehicle finance front, the AUM is expected to grow 13-14 percent in fiscal 2024 compared with an estimated 12 percent in the previous fiscal, on the back of solid underlying-asset sales.

“Strong pent-up demand and new launches will continue to drive car and utility vehicle sales,” Ratings agency said.

The ongoing rebound in economic activity, demand for fleet replacement, and focus on last-mile connectivity will support commercial vehicle sales.

The report also said that in the new-vehicle finance segment, especially cars, borrowers are highly sensitive to the interest rates. Hence, competition from banks remains tough given their ability to offer finer pricing.