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Credit Rating Agency ICRA in its latest report has said that the retail exposures of non-banking financial companies (NBFCs, excluding housing finance companies) are likely to expand by 12-14% in the current fiscal (FY24) with unsecured loans remaining the key driver; this follows the robust growth of 25% in FY23. The assets under management (AUM) exceeded Rs 14 trillion as of March 2023, with growth significantly surpassing expectations. 

According to the report, most asset segments had registered strong credit growth after the subdued performance during the Covid-19 pandemic years (FY2021-FY2022) with unsecured loans expanding the most, though on a lower base. NBFCs have been steadily improving their loan penetration by deepening and expanding/diversifying their target segments. The robust growth of 25% in AUM in FY2023 was on the back of the muted compound annual growth rate (CAGR) of 8% during the pandemic years (FY2021-FY2022); the AUM had increased at a CAGR of 19% during FY2019-FY2020. The growth revival witnessed since Q3 FY2022 continued sequentially, resulting in a strong overall growth in FY2023 as credit demand remained robust. 

The report further said NBFC retail exposure growth in FY2023 was powered by the unsecured segments (excluding microfinance) consisting of personal/consumer loans and unsecured business loans; this segment is estimated to have grown by about 45% in the last fiscal. The secured segment, consisting of vehicle loans, gold loans, mortgage-backed loans, etc., grew at a relatively moderate pace of about 17-18% during this period. Thus, the share of the unsecured segment of NBFCs increased to about 23% of the retail NBFC AUM from 17% in March 2021. Microfinance, which is also unsecured, is estimated at 11% of the retail AUM of NBFCs as of March 2023.