Data and management commentaries across non-banking finance company (NBFC)/banks suggest rising delinquencies in unsecured loans, especially in small ticket size personal loans (STPL), less than Rs50,000, and loans sourced via fin-tech partnership, foreign brokerage Nomura said in a report.
About 25% of incremental origination by volume over the past two years came from small ticket personal loans (STPL), but it accounted for only 2.5% of system PL by value.
Further, In the June 2023 quarter, 51% of borrowers who had taken small ticket personal loan already had more than four credit products at the time of taking another new loan (17% in June 2019 quarter).
Increase in delinquencies in STPL is unlikely to create issues at the system level. However, it should negatively impact some mid/small-sized NBFCs that have grown rapidly in this segment over the past few years and have significant exposure to unsecured loans.
Around 25-30% of incremental loan growth for NBFCs during FY22-2Q24 came from unsecured loans and hence rising delinquencies should negatively impact NBFC’s loan growth first, Nomura said.
Further, if stress continues to rise in unsecured loans, the credit cost trajectory for NBFCs in FY25 would be higher than historical trends and may negate the expected positive impact of repo rate cuts on the cost of funds, it added.
In line with earlier quarters, NBFCs continued to grow faster than system/banks in unsecured loans in Q2 due to elevated competition in secured segments. During FY22 to Q2 '24, NBFCs’ unsecured loans grew 75% vs 45% for the overall system.
The total AUM of these 13 NBFCs registered growth of 24% y-o-y in Q2 '24 (37% in FY22-Q2 '24), out of which the PL portfolio grew at a faster pace of 51% y-o-y in Q2 '24.
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