New Delhi [India], April 24 (ANI): The credit growth of the non-banking financial companies (NBFCs) is expected to ease to 13-15 per cent in financial year 2025 (FY25) and FY2026 from the 17 per cent in the previous two fiscals, rating agency ICRA said in a report.

Overall, NBFC credit stood at about Rs 52 trillion in December 2024, and it is set to exceed Rs 60 trillion by FY2026. The retail assets, which accounted for 58 per cent of the overall NBFC credit in December 2024, have been the key growth drivers, while other wholesale and infrastructure credit expanded at a stable rate of 10-12 per cent during FY2023-FY2025.

The retail assets of NFBCs expanded at a compounded annual growth rate (CAGR) of 23 per cent during FY2023-FY2024, said the report.

The rating agency expects retail assets to grow at a relatively slower 16-18 per cent CAGR during FY2025 and FY2026. Given the high base created in the post-COVID expansion of this segment and concerns of borrower overleveraging, it has impacted loan quality in some asset segments within this space.

Asset segments like microfinance, personal loans, credit cards and unsecured business loans are witnessing higher stress in FY2025, leading to elevated delinquencies and write-offs. Unsecured business loans account for nearly 28 per cent of retail NBFC credit in December 2024.

'While the stress is largely confined to the unsecured loans at present, in a constricted credit flow environment, the refinancing ability of some of the borrower segments shall get adversely impacted. Thus, performance-secured loans availed by these borrowers, namely small-ticket vehicle loans and micro and small-ticket mortgage loans, etc., shall remain a key monitorable,' said Karthik Srinivasan, Group Head Financial Sector Ratings, ICRA Limited.

The rating agency said that while most of the regulatory actions are expected to have some near-term impact on growth, they augur well for the sector in the long term, and most entities have the ability to absorb the near-term impact, if any, considering their strong balance sheets and healthy earnings profiles.

'Moderate loan growth expectations, along with limited dependence on short-term funding at present, bode well for sectoral liquidity, which is expected to remain adequate, but access to the commensurate funding remains key,' said the report.

The debt issuances improved in FY2025 are expected to remain healthy in the current fiscal year, supported by a favourable outlook on interest rate cuts.

However, competitive pressures shall remain elevated, which will impact margins, notwithstanding the reduction in the cost of funds.

As growth slows down, ICRA anticipates a rise in credit costs in line with increasing delinquencies, especially in unsecured loan segments.

Overall, the profitability of NBFCs, barring housing finance companies (HFCs), shall witness some headwinds, with return on average managed assets (RoMA) projected to decline by about 30-50 bps in FY2025-FY2026 vis-a-vis FY2024 levels.

While the HFCs' performance has remained relatively stable, the impact of portfolio seasoning on credit cost remains to be seen, said the report. (ANI)