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Loan Diversification has Led Non-Banking Finance Companies Enjoy Business

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Published on : Jun 16, 2015

Though Indian banks are struggling with the burden of bad loans amid slow credit growth, non-banking finance companies (NBFCs) are however enjoying business. NBFCs such as Edelweiss, JM Financial, Motilal Oswal, and India Infoline have extended their presence in agriculture, warehousing, housing, and other credit segments which has led to the expansion of their loan business from 31% to 81% over the last one year. The average ticket size of housing loans is around Rs 10-15 lakh whereas business loans to small and medium firms can stretch up to Rs 50 lakh. The credit growth is also attributed to medical equipment and commercial loans disbursed by these NBFCs. 

According to Vishal Kampani, the MD and CEO of institutional securities group at JM Financial, the last financial year has witnessed substantial growth in the lending business of the company. He is hopeful that the fresh capital raised by the company for real estate lending will be utilized this year. FY2014-15 saw commercial bank growth reduced to 8.6% from 14.3% registered the year before. Usually institutional segments are the major borrowers from banks. Weak credit demand has led to the fall in commercial bank growth. However, diversified financial services companies have registered credit demand. 

Rajesh Shah, the Chairman and CEO of Edelweiss Group, has mentioned that the company’s move into agri and warehousing sectors has opened opportunities to tap Rs 1 lakh crore market. Edelweiss has also started targeting the tier-2 and tier-3 cities with housing loans of small ticket sizes in the range of Rs 9-10 lakh. Shah further revealed that diversification of loan book has witnessed loan against shares dropping significantly to 14-15% which earlier comprised around 65-70% of the loan book.

India Infoline Finance Limited and Motilal Oswal Housing Finance have also similar stories to tell. For IIFL, commercial vehicle and home loans have witnessed fastest growth.