India's top finance companies (fincos) will increase their loan books by 21-22% in the next two years, well ahead of the banking industry's projected 11-12% growth, giving them opportunities to take even more market share from banks, said a report published on Thursday.
A major driver of the growth is fincos' dominance in retail lending, a market that is still underpenetrated in India, said S&P Global Ratings.
High-quality finance firms are highly capitalised, which aids in speedy growth of loans and also acts as a cushioning against possible risks.
"Earnings momentum is also expected to continue, albeit with modestly improved net interest margins in the next two years. This will further enhance the buffer," the report added.
S&P Global Ratings credit analyst Geeta Chugh further commented, "Tighter underwriting standards for India's fincos will curb plans for growth and de-escalate risk accumulation in this financial niche."
The report further noted that it was inevitable that there would be some deceleration in some of the products, with a greater focus on risk management. This is seen in better underwriting habits, with lending being mostly concentrated in low-risk borrowers and generally low rates of loan approval.
Increased regulatory scrutiny of certain lending categories, like gold-backed lending, may also curtail asset growth, the report said.
"Asset quality of fincos is remaining resilient, although pockets of stress still exist in the areas of microfinance and unsecured lending," Chugh noted.
These pressure areas are largely because of growth at a speedy pace and competitive lending to borrowers with poor credit profiles without an appropriate evaluation of their repayment ability.
The report pointed out that unsecured consumer loans, particularly small ticket loans with increased exposure to risk, have experienced increased leverage and delinquency.
It pointed out that the Reserve Bank of India's pro-active risk weight adjustments for unsecured retail exposures, coupled with more stringent underwriting principles, could result in a moderate deceleration in the expansion of unsecured personal loans, estimating a growth of approximately 8-9% over the fiscal year ending March 2025.
Read also| India Merits Higher Ratings as BBB Grade Reflects Only Macroeconomic Strength: Report
Read also| India’s Resilience Amid Global Trade Impact from Tariffs: Report
