NBFCs: Turnaround In sight; Growth To Be Muted

Non Banking Financial Companies (NBFCs) are likely to see a turnaround with muted growth, Motilal Oswal has said in its latest report.

The broking firm expects mid-single-digit assets under management growth in FY22 post modest decline in FY21, with 'retailization' trend to continue

"After posting Assets Under Management 9AUM) CAGR in the mid-teens over FY15-20, the NBFC sector is likely to witness 0-2% decline in total AUM in FY21, driven by lower disbursements. On this low base, consolidated AUM is likely to grow 5-6% in FY22, led by home loans (7-9%) and gold loans (12-14%). LAP AUM is likely to remain largely flat, while wholesale finance would see high-single-digit AUM decline in FY22.

It is interesting to note the divergence in growth between large and small players. Excluding the Top 5 NBFCs, consolidated assets under management is likely to be largely flat YoY in FY22 (implying the 5-6% growth would be driven by the Top 5 players). Considering modest growth expectations in FY22, the NBFC sector's market share is likely to decline 100bp YoY to 17%," the brokerage firm has stated.

According to the Motilal Oswal research report, home loans and gold loans remain the key growth drivers with AUM growth in the high single digits and low teens, respectively.

"Vehicle finance should see only mid-single-digit growth in FY22, while the LAP portfolios should be largely flat. Wholesale finance would see high-single-digit AUM decline in FY22. Thus, the trend of the 'retailization' of AUM is likely to continue in FY22 as well," the broking firm has stated.