Banks to favour mid and small NBFCs on improved performance

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Banks have increasingly gained confidence in non-medium and small-caps.Bank Financial institutions based on their improved performance. Bank credit to NBFCs increased by 31% in September 2022. Appraisal Agency Indian Ratings A sharp rise in bank lending rates and fixed interest rates has been reported Capital The market may move some incremental funds through large NBFCs capital market Opening up bank financing to non-banking small and medium-sized enterprises.

“While medium and small-sized NBFCs are mainly dependent on banks, banks have also gained confidence in these NBFCs based on their performance during the pandemic and the support shown by sponsors,” India Ratings said. “The agency is looking forward to the evolving financial environment among banks and small and medium-sized NBFCs debt Supportive.”

Banks are the primary and dominant option for sustainable financing for medium-sized NBFCs. Bank funding to non-banks has increased as these institutions have demonstrated reasonably satisfactory performance during the Covid-19 period.

“This has been exacerbated by the regulatory effort to reduce the regulatory gap between banks and NBFCs,” the agency said.

The regulatory framework for large NBFCs is increasingly aligned with the introduction of banks. Immediate corrective action Amendment of Structural and Non-Performing Asset Recognition Regulations.

The rating agency also believes that with improved access to finance, there will be stiff competition among medium and small-sized NBFCs to lend to SMEs through both secured and unsecured channels.

The funding mix for NBFCs has also changed in the last six to eight months due to the asymmetric exchange of interest rates between banks and the capital market. Given the sharp rise in short-term interest rates in the capital markets, NBFCs prefer banks to raise large amounts of liability funds rather than tapping the capital markets. This has led to a crowding out of small NBFCs as large corporates flock to banks for their financing needs. This ultimately resulted in higher financial costs for smaller companies, the company said.

The rating agency also said there may be some pressure on net interest margins as finance costs increase by 80 to 100 basis points in FY23.

“Certain NBFCs may offer increments to end borrowers in select categories such as unsecured commercial and personal loans, small-ticket loans against property, two-wheeler loans and microfinance loans,” it said. “However, NBFCs in highly competitive segments like big-ticket loans Property And home loans have to absorb a portion of the rise in financing costs, thereby affecting their margins.”


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