Context:
Banks are set to take a conservative approach to lending to Non Banking Financial Companies (NBFCs).
Rationale: Concerns about performance in the sector as pointed out by Pankaj Naik, Director, India Ratings & Research (Ind Ra).
Focus on Top Tier NBFCs
- Banks will restrict their exposure to higher rated NBFCs.
- Lending to weaker NBFCs is considered high risk due to the mounting asset stress.
Signs of Stress in NBFCs
- Secured and unsecured loans slinking for NBFCs are showing increasing signs of stress.
- Asset quality pressure shall become visible by FY26.
- NBFC loan pricing shall remain lofty:
- There shall not be any immediate reduction in lending rates to NBFCs.
- With risk rates going back to normal, lending from the banks will remain conservative.
Microfinance Sector Challenges Add to Risk Aversion
- Microfinance Institutions (MFI) sector facing increasing delinquencies.
- Consumer income moderation, leading to rising defaults.
- Nomura Research: Stress in MFI segment will further discourage banks from increasing exposure.
Banks will favor lending to higher rated NBFCs. Asset quality pressures in NBFCs & MFIs will affect lending sentiment. High risk aversion shall result in NBFC loan pricing being kept high.
Source: The Hindu
