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Unlocking Financial Freedom: How Personal Loan Growth in India is Changing the Game

March 4, 2024, 8:37 pmupdated March 10, 2024, 1:43 pm 1.9k Views

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Personal Loan Growth India

Unlocking Financial Freedom: How Personal Loan Growth in India is Changing the Game

Personal Loan Growth India: A testament to the nation’s evolving financial landscape, showcasing a remarkable 33% CAGR over four years.

India’s Personal Loan Sector: A Thriving Haven for Borrowers

In the heart of India’s financial landscape, personal loans have emerged as a beacon of growth, boasting a staggering Compound Annual Growth Rate (CAGR) of 33% over the past four years. This meteoric rise, outpacing the overall credit growth, has been fueled by a significant increase in credit between September 2022 and 2023, primarily driven by a surge in personal loans (32.5% growth) and agricultural lending (43.7% growth). These figures, highlighted in the latest NBFC tracker report by Mazars in India, present a compelling narrative of the country’s evolving financial landscape.

The Non-Banking Financial Company (NBFC) sector, the backdrop against which these developments unfold, has undergone substantial regulatory changes instigated by the Reserve Bank of India (RBI) in 2023. These changes have led to a recalibration of risk weights and heightened supervision, ushering in a new era of regulatory oversight. Rahul Singhal, a subject matter expert at S.N. Dhawan & CO LLP, underscores the pivotal shifts these regulations have prompted, setting the stage for an era of digital transformation and innovative funding mechanisms.

Key findings from the report paint a picture of a sector in flux. The NBFC sector witnessed a 20.8% increase in credit growth, with personal loans and agricultural lending driving this surge. Over the past four years, personal loans have grown at a remarkable CAGR of 33%, a testament to their increasing popularity among Indian consumers. However, recent risk weight adjustments for retail loans raise questions about the sector’s future credit growth trajectory.

The report also delves into the Gross Non-Performing Assets (GNPA) ratio, a critical indicator of asset quality. In the first half of FY24, NBFCs saw a drop in their GNPA ratio across all sectors, with personal loans boasting the lowest ratio at 3.6% by September 2023. However, private NBFCs continue to face challenges, with a high GNPA ratio of 12.5% in industrial advances. Despite these challenges, all sectors have shown improvement in their GNPA ratios, signaling a positive trend.

Sources of funds for NBFCs remain largely unchanged, with borrowings remaining the primary funding source. However, there has been a slight increase in reliance on borrowing, reaching 62.1% in September 2023. Within borrowings, banks and debentures have emerged as the major sources of funds, with NBFCs raising 25.0% through bank borrowing and 19.6% through other debentures by September 2023.

The report also shines a light on credit risk resilience among NBFCs, with the RBI conducting stress tests on 146 large NBFCs. As of September 2023, these NBFCs maintained a 24.4% capital adequacy ratio and a 3.1% GNPA ratio. However, the number of NBFCs failing to meet the 15% regulatory standard has increased across all risk categories, highlighting the need for continued vigilance.

In terms of performance, top NBFCs have seen a significant increase in assets, with Capri Loans leading the pack with a 59.1% AUM growth. Additionally, the majority of NBFCs have seen an improvement in their GNPA ratio, signaling a positive trend in asset quality.

The report concludes with a forward-looking perspective, highlighting the dynamic landscape that lies ahead for the NBFC sector. As the sector navigates through challenges and embraces digital transformation, it is poised to seize growth opportunities and shape the future of India’s financial landscape.

As we look ahead to the future of India’s personal loan sector, it’s clear that the sector is at a critical juncture. The report offers valuable insights into the sector’s growth trajectory, challenges, and opportunities, providing stakeholders with a roadmap for navigating the evolving landscape.

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