The massive bad loans problem faced by India’s banking sector, which that has prevented nearly a dozen state-run banks from any kind of lending, has been one of the prime growth drivers for non-banking finance companies (NBFCs), said panellists at News Corp VCCircle’s FinServ 2018 summit on Tuesday.
The panel comprising Indiabulls Housing Finance deputy managing director Ashwini Hooda, Argus Partners managing partner Krishnava Dutt, Avendus Finance MD and CEO Sandeep Thapliyal, Staragri Finance CEO Gurinder Singh Sehmbey and Indostar Capital vice chairman and CEO R Sridhar deliberated on the topic ‘Banks’ Adversity, NBFCs' Advantage’.
The executives discussed how India’s NBFC industry has evolved over the past few years in light of the problems in India’s banking sector and the growing non-performing assets (NPAs).
Thapliyal said the bad loans problem opened massive opportunities for NBFCs, especially in the past three years or so. “The total size of credit in India is roughly $1.5 trillion, of which almost 70% is PSU banks. That is a large piece of the pie that is not serviced and, therefore, made it a huge opportunity for private banks and NBFCs,” Thapliyal said, adding that NBFCs will continue to see growth as they strengthen in the segments they operate in.
In a two-part series, VCCircle reported earlier this month and last month, how NBFCs recorded double-digit growth in their assets over the past few years. However, assets of at least three banks grew by less than 10% and of two others were barely above that mark.
Further, eight of the 10 NBFCs VCCircle analysed posted handsome growth in their profits before tax in the past five years. However, at least four banks (all state-run) swung to losses as they struggled to manage the toxic debt sitting on their books.
“It would be unfair to attribute NBFCs’ success to the failure or problems in the banking sector alone. We should look at the NBFCs’ strengths also. NBFCs came into existence where banks could not reach in terms of distribution network or segments which banks could not cater to,” said Sridhar, adding that nobody anticipated that NBFCs could touch an asset size of Rs 1 trillion.
Hooda highlighted that home loan products, which have always been competitively priced, have seen NBFCs garner a majority of the market share over the years. NBFCs, which had about 20% market share in 2005-06, commanded a share of 43% in 2018. This share is likely to touch 50% in coming years.
“NBFCs have stood strong against banks because they have been built on specialisation and segmentation,” Hooda said, adding that being mono-line focus makes them more efficient and growth quicker.
Dutt said both banks and NBFCs are equally important. When banks have not been able to lend, especially in the past two-three years, a lot of corporate finance-led NBFCs have come up and grown, even as retail-led NBFCs continued to exist.
However, Dutt highlighted the rise in NPAs of NBFCs. He offered a word of caution and said NBFCs must avoid the mistakes seen in the banking sector that have resulted into a massive mountain of NPAs.