NBFC Wave & Red Flags

A PACKAGE OF TWO contrasting stories this issue brings alive an ironic development taking place in India’s rapidly growing financial services industry — the backbone of any fast-paced economy.

On one hand, the rush of some of India’s biggest conglomerates — from Reliance Industries to Godrej; Tata to Hero MotoCorp and L&T to Serum Institute — to launch NBFCs explains just why NBFC is the latest holy grail of the financial services sector. On the other, the astounding growth of the NBFC sector is making banking regulator Reserve Bank of India particularly jittery about the potential risks to the economic ecosystem.

In the first story, Nevin John deciphers why India’s biggest companies are rushing to catch the NBFC wave even as the sector’s assets under management have grown 13 times from under ₹2 lakh crore in 2000 to ₹27 lakh crore in FY22. A conducive regulatory environment, fast GDP growth, rapid urbanisation, higher spending power and widespread digitisation in financial services has helped nimbler NBFCs strengthen their foothold in financing, often taking share from the banking sector.

NBFCs have a majority share of the country’s consumer durables loans with 73%, followed by private banks at 27%. In microfinancing, they are almost on par with banks (33% market share). They lead in two-wheeler loans also with 64% share. In overall auto loans, they account for 25% share, competing directly with banks (PSU and private) which have 73%. And in personal, business and commercial lending, their share is already at 15%.

Rating agency CRISIL believes NBFCs will grow 16-18% in FY24 and 14-17% in FY25 on the back of strong credit demand across retail loan segments.

Ironically, RBI sees red in the nature of this rapid growth. In an accompanying story, we bring you why RBI believes NBFCs’ unbridled growth is adding risks to an economy that is projected to slow down due to a global drag. RBI has raised an alarm, particularly after noticing how banks have upped their lending very significantly to the risky NBFC sector.

Our Special Issue this month is Fortune’s flagship offering globally — the 500 largest companies. This year’s Fortune 500 India list provides evidence that Covid is well and truly behind us and India Inc.’s belt tightening during the preceding slowdown has now set it up for a new phase of growth and expansion. V. Keshavdev’s lead story unravels an unprecedented revenue growth in the ‘₹1 lakh crore club’.

A record nine companies (three PSUs and six private companies) entered the ‘₹1 lakh crore club’, taking the total count to 30 — a 4x growth since 2010. The good news is that records are not just tumbling in top line, but bottom line as well. The ₹10.93 lakh crore net profit of Fortune 500 India companies is not just the highest ever, it has also grown 3x since 2010. All this bodes well for the future of corporate India as it gives companies the foundation to grow exponentially from here on.

In other stories in the issue read how the big are getting bigger as the largest companies unleash a wave of organic and inorganic growth; how five new-age firms have made a place for themselves in the league of India’s 500 largest companies; and who’s rocking in ESG & CSR mandates, who’s struggling. Happy reading!