India’s Leading BFSI and FinTech Companies 2023

40 | India’s Leading BFSI and FinTech Companies 2023 [ INDIAN NBFCs SECTOR OVERVIEW ] Gold loans is a niche segment with retail lending where NBFCs have a robust presence. However, since FY19, banks are gaining market share even in gold lending segment. The banks accounts in gold financing have increased to ~39% in FY22 FUND-SOURCING NEEDS PRUDENCE NBFCs other than deposit-taking ones rely heavily on borrowings to fund their activities. Borrowings from markets and from banks constituted roughly around 75 per cent of their total borrowings at the end of Mar’22. Non-convertible debenture (NCD) with strong ratings has highest share in total private placements of NBFCs. NCD accounts for ~40% share as of Mar’22. A benign interest rate regime helpedNBFCs to increase their borrowings from banks. NBFCs borrowings from banks increased from 33% share in FY21 to 35.5% in FY22. NBFCs rely heavily on public sector banks, followed by private sector banks and foreign banks as funding source. NBFCs have been relying on long term borrowings as funding source. Borrowings payable more than 12 months increased from 65.4% as of Mar’20 to 68.1% as of Mar’22. With interest rates firming up following rate hikes by the RBI, the spread of NBFC bonds yields over G-sec yields of corresponding maturity has widened marginally with normalization of monetary policy and rising global yields. BETTER ASSET QUALITY Given the current interest rate regime, l iquidi ty mismatch - which is the difference between inflows and outflows for a given time bucket, is critical. The sector did see an improvement in the cumulative mismatch in the short- time bucket due to fall in outflows at end-Mar’22. FY22 saw asset quality of the sector improve. Gross NPA declined from 6.0% in FY21 to 5.8% in FY22 while Net NPA declined from 2.7% in FY21 to 2.3% in FY22. The provision coverage ratio increased from 56.7% at the end FY21 to 60.7% at end FY22. Asset quality of Indian NBFCs Return on Assets of Indian NBFCs Source: RBI All these critical numbers suggest the robustness of the system and the resilience of the sector. Yet, there are concerns. Industry is traditionally the largest recipient of credit from NBFCs. A perusal of the delinquent assets sector-wise of NBFCs reveals that the industry had the dominant share of NPAs at end-Mar’22, with large industries accounting for the major portion. Vehicle loans and commercial real estate segments, too, have the largest share of impaired assets in retail and service sector loans, respectively. Nevertheless, the NPA ratio broadly declined across the sectors. Gross NPA declined from 6.0% in FY21 to 5.8% in FY22 while Net NPA declined from 2.7% in FY21 to 2.3% in FY22 Dun & Bradstreet