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ICRA in its latest report has said that the non-banking financial companies (NBFCs) shall witness headwinds related to funding availability, which is likely to impede growth vis-a-vis the robust expansion in the last two fiscals. It projects the growth of NBFC asset under management (AUM) to ease to 13-15% in FY25 from 18% in FY24. Standing at about Rs 47 trillion in March 2024, the sector AUM is set to cross Rs 50 trillion in FY25. 

It stated key challenges for meeting growth expectations, however, would be in accessing the required debt funding over and above the refinancing of existing debt. The estimated incremental debt funding for AUM expansion is Rs 5.6-6.0 trillion for FY25. Notwithstanding the sizeable demand and unmet credit requirements, the downside risk to the indicated NBFC AUM growth would accentuate, if the tight funding environment, as witnessed in Q1 FY25, continues for a prolonged period in the current fiscal.

A M Karthik, Senior Vice President & Co-Group Head Financial Sector Ratings, ICRA, said ‘The banking sector, a key lender to the NBFC segment, is expected to register an overall credit expansion of around 12% in FY25, resulting in an incremental bank credit of about Rs 19.0-20.5 trillion. This, however, is lower than the Rs 22 trillion credit expansion in the last fiscal. Further, the impact of tightening regulatory norms for bank funding to the sector, is already visible over the last few months. Incremental direct bank credit to the NBFCs in Q1 FY25 was a modest Rs 75 billion compared to Rs 920 billion in Q1 FY24.’