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Retail loans by banks and finance companies in India could triple by 2030, driving household leverage to 34 per cent by fiscal year 2031 from about 23 per cent at the end of 2024, according to a new report. 

Finance companies will sustain loan growth stronger than the banking sector, which is expected to grow at 14 per cent, according to the S&P Global Ratings report.

The finance companies' loan book is unseasoned. Strong economic growth has supported retail repayment capacity.

"We see the strength in retail lending as a competitive edge, with finance companies dominating in some retail products," said Geeta Chugh, credit analyst, S&P Global Ratings.

Generally, upper-layer finance companies have strong capital levels, which will support credit growth over the next two years and provide downside buffers.

Chugh added the recent actions by the Reserve Bank of India (RBI) will curtail lenders' overexuberance, enhance compliance and safeguard customers.

Indian lenders' strong underwriting will support asset quality. This is reflected in their focus on lending primarily to low-risk customers and generally low loan approval rates, the report noted.

Funding for finance companies remains sensitive to confidence levels, but companies with strong parentage have better access to competitive rates. Emerging co-lending models are easing funding pressure.

Rated and unrated finance companies have strong capital levels to support high loan growth, according to the report.

As per the Reserve Bank of India (RBI), the Indian financial system remains resilient and is gaining strength from broader macroeconomic stability.

The banking sector’s well-capitalised and unclogged balance sheet is reflective of higher risk absorption capacity while the NBFC sector and the Urban Cooperative Banks also continue to show improvements.

However, amid the stable financial sector conditions, the emphasis cannot shift away from proactive identification of potential risks and challenges, if any, according to the Central Bank.