India’s top finance companies, often called fincos, are set to outpace banks in loan growth over the next two years. According to a new report from S&P Global Ratings, these companies expect their loan books to expand by 21-22%, compared to just 11-12% for the banking sector. This surge could help fincos grab a bigger slice of the market from traditional banks.
A key reason behind this boom? Fincos have a strong foothold in retail lending, an area that’s still growing fast in India due to low penetration. The report highlights how upper-tier fincos boast solid capital reserves, which will fuel this high loan growth while acting as a safety net against any bumps.
“We anticipate steady earnings growth, with net interest margins ticking up slightly over the next two years. This will further strengthen their position,” the report notes.
But it’s not all smooth sailing. Stricter underwriting standards are helping fincos control risks and prevent over-expansion in this competitive financial sector. Credit analyst Geeta Chugh from S&P Global Ratings explains, “These tougher checks will curb aggressive growth and reduce potential risks.”
Expect some slowdown in specific loan products as companies prioritize risk management. This shows up in smarter lending practices—focusing on low-risk customers and keeping loan approvals tight.
Regulatory oversight is also tightening in areas like gold loans, which might slow down asset growth for fincos. Overall, asset quality remains stable, but stress lingers in microfinance and unsecured loans.
Chugh points out that past rapid growth and lenient lending to borrowers with weak credit scores led to these issues, often ignoring repayment ability. Unsecured personal loans, especially small-ticket ones with higher risks, have seen rising defaults and borrower debt levels.
The Reserve Bank of India (RBI) is stepping in with proactive moves, like adjusting risk weights on unsecured retail loans and pushing for better underwriting. As a result, growth in unsecured personal loans could dip to 8-9% for the fiscal year ending March 2025.
This outlook paints a picture of cautious optimism for India’s finance companies, balancing expansion with smarter risk controls in the evolving lending landscape.
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