Indian Non-Banking Financial Companies (NBFCs) are strategically enhancing their focus on secured lending products and refining risk assessment and underwriting processes. This evolution is accompanied by a noticeable trend of lenders with substantial microfinance operations gradually expanding into individual lending.

Indian Non-Banking Financial Companies (NBFCs) are strategically enhancing their focus on secured lending products and refining risk assessment and underwriting processes. This evolution is accompanied by a noticeable trend of lenders with substantial microfinance operations gradually expanding into individual lending.

Indian Non-Banking Financial Companies (NBFCs) are strategically enhancing their focus on secured lending products and refining risk assessment and underwriting processes. This evolution is accompanied by a noticeable trend of lenders with substantial microfinance operations gradually expanding into individual lending.

The recent trends in the NBFC segment show that several NBFCs across the segment in India are increasing their focus on secured lending. The increased focus on secured products is accompanied by continued attention to risk-adjusted pricing and underwriting.

There has also been a gradual movement towards individual lending among lenders with significant microfinance exposure. These observations were made in a recent report by Equirus Research.

Several lenders in the segment are pursuing growth through a combination of new products, deeper penetration of existing customer segments and selective geographic expansion.

The report says that Asset quality continues to be a major consideration in the growth outlook, particularly for lenders with exposure to MFI, unsecured and commercial-vehicle portfolios. The research indicates that asset-quality trends have stabilised or improved across several lenders, although some individual segments and geographies remain monitorable.

The research points to operating efficiency as an important component of profitability, particularly as lenders expand their loan books and face pressure on spreads.

Going by specific instances, Ujjivan Small Finance Bank currently has a secured mix of around 50 per cent and is targeting a further increase, with affordable housing, micro-mortgages, vehicle finance and gold loans among the identified growth segments.

Equitas Small Finance Bank has a diversified portfolio comprising small business lending, vehicle finance, housing, MFI and gold, with housing and vehicle finance expected to remain important growth drivers.

The Fedbank Financial Services, on the other hand, continues to identify gold loans and small-ticket LAP as key growth areas, while Can Fin Homes expects housing demand to remain healthy, particularly across Tier-2 markets and areas where infrastructure and housing demand are improving.

The increased focus on secured products is accompanied by continued attention to risk-adjusted pricing and underwriting. Fedbank, for example, is maintaining conservative approval rates in its STLAP business and has strengthened its underwriting and collection infrastructure.

Individual lending is emerging alongside the traditional MFI franchise

The research also highlights a gradual movement towards individual lending among lenders with significant microfinance exposure. CreditAccess Grameen is seeing customers move from group loans towards individual loans, with 6–8 per cent of customers graduating to retail as JLG tenures shorten. Arman Financial Services is also focusing on individual lending, with non-MFI businesses and individual loans forming an increasingly important part of its portfolio strategy.

As per the report, the shift towards secured and individual lending is visible across several NBFCs and SFBs, while banks are also diversifying their product mix. At the same time, lenders are placing greater emphasis on underwriting, collections, direct sourcing, technology and branch productivity.

For profitability, the key variables remain credit-cost trends, margin protection, funding costs and operating leverage. The ability to maintain growth while managing these factors is likely to remain important for lender performance.

As per Equirus, the individual company outlooks indicate continued growth across several lending categories. AU Small Finance Bank expects loan growth of 2–2.5 times nominal GDP growth over the next three to five years. DCB Bank is targeting 18–20 per cent balance-sheet growth and 18–20 per cent bottom-line growth.

Among NBFCs, Home First Finance expects around 25 per cent growth over FY27-28, while MAS Financial is targeting 20–25 per cent AUM growth. Housing, vehicle finance, gold loans, MSME and retail/individual lending therefore remain important areas of growth across the lenders covered.

On the other hand, experts from Anand Rathi Global Finance feel that NBFCs are aiming towards “As NBFCs march towards achieving sustainable growth with reduced risk, retail lending is picking pace, particularly in gold loan growing at more than 70 per cent YoY followed by loans against property (LAP), microfinance, unsecured business loans and personal loans which have grown in double digits YoY over last year.

At the same time, increased regulatory oversight remains the key to sustainable growth. NBFCs are adopting multiple strategies to ensure compliance without impacting growth. Strengthened risk management & advanced credit assessment methods, including AI-driven underwriting models, are helping NBFCs improve borrower selection and reduce delinquencies, resulting in controlled asset quality with the growing portfolio,” remarked Simranjeet Singh, CEO - SME and Retail Business, Anand Rathi Global Finance.

TAGS