At a time when the hikes in interest rates and tighter policy are raising concerns for the financial sector, an increase in economic activity could drive higher business volumes for lenders, noted a report by Business Standard.
According to the report, the liquidity in the banking system has moved from a surplus of ₹8 trillion to a deficit of ₹33,000 crore over the 2022 calendar year. Bank credit has grown 17.5 percent YoY (year-on-year) while the policy rates have risen by 225 basis points (bps).
As stated by the report, NBFCs have a higher cost of funds compared to commercial banks and their lending patterns are, on the whole, riskier.
"However, bank credit to NBFCs is showing a strong trend and the NBFC liquidity environment continues to remain comfortable. As of October, bank lending to NBFCs is up 16 percent year to date or YTD (up 7 percent month-on-month or MoM). Moreover, top-rated NBFCs have been able to issue bonds to the tune of about ₹30,000 crore per month," stated BS, adding that this could imply that NBFCs are not likely to be cash-strapped if demand for credit rises.
The two of the key markets of NBFC – vehicle finance and mortgages – comprise approximately 28 percent and 40 percent, respectively, of total disbursals, as per the report.
While commercial banks and NBFCs both will face NIM compression owing to a rise in borrowing costs, there will be volume growth in the vehicle finance market, said the report. The festival season demand has led to a pickup in CVs as well as passenger vehicle sales.
Auto financiers told BS that they are confident that H2 (second half of the 2022-23 financial year or FY23) will be better, in terms of growth, as activities have increased, in mining and construction.
“In the mortgage market, banks have to abide by the EBLR (external benchmark lending rate) which has risen sharply as policy rates were hiked. This gives NBFCs in the housing finance market a competitive edge,” the report added.