Profitability of Indian non-bank lenders expected to moderate in next 12-18 months, says Moody’s Ratings

Profitability of Indian non-bank lenders expected to moderate in next 12-18 months, says Moody’s Ratings
Profitability of Indian non-bank lenders expected to moderate in next 12-18 months, says Moody’s Ratings

Indian non-banking financial companies (NBFCs) will see some moderation in profitability in the next 12-18 months due to higher funding costs, rating agency Moody’s said in a report released on Tuesday.

In November, India’s central bank asked banks to set aside additional capital for lending to NBFCs, making borrowing from banks more expensive for non-bank lenders.

The Reserve Bank of India has also increased capital requirements for unsecured loans, both for banks and non-bank lenders.

Indian non-bank lenders have reported healthy loan growth in recent quarters due to strong credit demand, particularly in the area of ​​unsecured loans.

But as unsecured loans mature, Moody’s expects the industry’s credit costs, or provisions for loan losses as a proportion of gross loans, to rise from cyclically low levels.

Moody’s also expects some NBFCs to reduce unsecured loans and increase secured loans after the central bank’s November order, and that non-performing asset ratios for non-banks will remain below the pre-pandemic levels.

Loans to NBFCs are expected to grow by around 15% over the next 12-18 months, according to Moody’s Ratings.

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