Rising finance penetration to provide impetus to consumer durable financing: ICRA
, ET Bureau|
Jan 02, 2018, 02.06 PM IST
MUMBAI: Banks and non-banks will continue to vie for the consumer durable loan share in 2018, according to a report released by rating agency ICRA. In the law few years need for higher returns has led financial institutions aggressively expanding presence in the unsecured retail credit market.
According to ICRA's analysis, the growth in such short tenure loans is expected to translate into a portfolio size of about Rs. 70000 - 75000 crore by March 2021. Of this, NBFCs' share is expected to increase to about 40-45% by FY2021 from 32% in FY2017 as more entities venture into the consumer durable financing space to improve their portfolio diversity and business yields.
"Disbursements in the consumer durable segment are poised to grow at a healthy pace of 21-24% per annum to reach Rs. 1.9-2.1 trillion in FY2021," said Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA. "While shortening replacement cycles in consumer electronics and the large under-penetrated market in the consumer appliances segments augur well from a demand perspective, proliferation of lender-kiosks at dealer locations, increasing awareness and attractive promotional loan schemes are likely to translate into higher finance off take going forward".
The share of NBFCs in the unsecured lending portfolio have grown over the years, propelled by customised product offerings (consumer durable financing, lifestyle financing and personal loans), improved availability of credit bureau data, and strengthening of their credit processes and distribution networks.
Between 2013 and 2017, NBFCs' CD finance portfolios grew by about five times. Their share in the overall CD portfolio of banks and NBFCs increased from 19% as on March 31, 2013 to 32% as on March 31, 2017.
"ICRA expects that competition in the CD lending space is set to intensify as more NBFCs enter the space which could have an impact on margins," Srinivasan added. "High operating and credit costs, notwithstanding the superior yields, will remain the key entry barriers into the segment. Any dilution in underwriting standards could lead to a higher skew towards sub-prime borrowers resulting in elevated credit costs and lower returns."
According to ICRA's analysis, the growth in such short tenure loans is expected to translate into a portfolio size of about Rs. 70000 - 75000 crore by March 2021. Of this, NBFCs' share is expected to increase to about 40-45% by FY2021 from 32% in FY2017 as more entities venture into the consumer durable financing space to improve their portfolio diversity and business yields.
"Disbursements in the consumer durable segment are poised to grow at a healthy pace of 21-24% per annum to reach Rs. 1.9-2.1 trillion in FY2021," said Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA. "While shortening replacement cycles in consumer electronics and the large under-penetrated market in the consumer appliances segments augur well from a demand perspective, proliferation of lender-kiosks at dealer locations, increasing awareness and attractive promotional loan schemes are likely to translate into higher finance off take going forward".
The share of NBFCs in the unsecured lending portfolio have grown over the years, propelled by customised product offerings (consumer durable financing, lifestyle financing and personal loans), improved availability of credit bureau data, and strengthening of their credit processes and distribution networks.
Between 2013 and 2017, NBFCs' CD finance portfolios grew by about five times. Their share in the overall CD portfolio of banks and NBFCs increased from 19% as on March 31, 2013 to 32% as on March 31, 2017.
"ICRA expects that competition in the CD lending space is set to intensify as more NBFCs enter the space which could have an impact on margins," Srinivasan added. "High operating and credit costs, notwithstanding the superior yields, will remain the key entry barriers into the segment. Any dilution in underwriting standards could lead to a higher skew towards sub-prime borrowers resulting in elevated credit costs and lower returns."
