Blitz Bureau
NEW DELHI: India’s top-rated finance companies (fincos) are projected to grow their loan books at 21-22 per cent over the next two years — higher than 11-12 per cent for banking sector loan growth, thus grabbing market share from banks, a report said on September 11. One driver for the sector is its strong presence in retail lending, which is still underpenetrated in India, S&P Global Ratings said in its report. Upper-layer fincos have strong capital levels, which will support high loan growth and provide downside buffers. “We also expect earnings momentum to sustain, with slightly higher net interest margins over the next two years. This will add to the buffer,” the report said.
“Stricter underwriting standards for India’s fincos will rein in growth plans and defuse risk buildup for this financial niche,” said S& P Global Ratings credit analyst, Geeta Chugh. At the same time, some slowdown in certain products is likely to continue due to a stronger focus on risk management. This is reflected in improved underwriting–lending primarily to low-risk customers and with generally low loan approval rates. According to the report, tighter regulatory supervision in some lending niches, including gold-backed loans, could also rein in asset expansion.
“Asset quality for fincos is holding up, though some pockets of stress persist in micro finance and unsecured loans,” Chugh noted. This stress can be attributed to rapid growth and exuberant lending practices directed toward borrowers with weak credit profiles, without adequate consideration of their repayment capacity.
