NBFC loans drop 31% in January-March

MUMBAI: Loan sanctions by non-banking finance companies (NBFCs) have fallen 31% in the fourth quarter of FY19. Barring gold and personal loans, sanctions under most segments have dipped sharply.

In absolute terms, the shrinkage has been highest in the home loan segment where sanctions have fallen by over Rs 16,000 crore in the fourth quarter. As against Rs 70,163 crore sanctioned in the fourth quarter of FY18, finance companies (which includes housing finance companies) disbursed Rs 54,167 crore in the fourth quarter. Loans against property is the second highest segment where the drop has been to the tune of Rs 15,000 crore. According to bankers, this segment reflects lending to small businesses who offer their land as collateral.

Loan growth by NBFCs had slowed down to 13% in the first quarter of the year and thereafter picked up marginally to 19% in the next quarter. The third quarter, however, saw growth falling 17% following rumours of some companies facing solvency issues and the defaults by IL&FS which began in the second quarter.



“It’s high time regulators, bankers, funders and investors take note of this and work out quick remedial measures for well-run asset and loan financing NBFCs in auto, MSME, retail. These sectors have huge linkages and employment-generation opportunities,” said Mahesh Thakkar, director general, Finance Industry Development Corporation — a non-banking lenders’ association.

The liquidity crunch in the sector has resulted in NBFCs pulling back. Industry persons say that NBFCs accounted for a third of bank credit in FY18 and such a sharp slowdown does not augur well for the economy, particularly small businesses and real estate segment which have traditionally depended on NBFCs for loans. Lending has slowed down as credit lines got squeezed in the aftermath of the IL&FS default crisis. Even on a full-year basis, the sanction of loans has dipped by 6.1% to Rs 9.06 lakh crore from Rs 9.65 lakh crore in the previous year.

While banks have been picking up some of the slack in lending, rating agencies say that the withdrawal of large NBFCs from lending would result in a slowdown in FY20. In a report released earlier this month, ICRA had said that given the tough operating environment, housing credit growth in FY20 will be in the range of 13-15%, which is lower than the last three years when it clipped past 17%. The overall industry loan growth for housing finance companies had slowed down to 15% for FY18.