The non-banking finance companies (NBFCs) in India have reported a 12% year-on-year increase in loan sanctions for the first quarter of the current financial year (Q1FY25), indicating a robust demand primarily driven by home and auto loans. Despite this growth, loan sanctions saw a decline of 11% compared to the previous quarter, highlighting the seasonality typically observed in the finance sector.
According to data released by the Finance Industry Development Council (FIDC), NBFCs sanctioned loans worth ₹5.08 trillion during the April-June 2024 period, a substantial rise from ₹4.54 trillion in the same quarter last year (Q1FY24). The FIDC serves as the industry lobby group for finance companies and plays a vital role in analyzing trends in the sector.
Key Segments Driving Growth
The increase in loan sanctions can be attributed to strong performances in several key segments:
- Home Loans: The housing loan segment reported sanctions totaling ₹50,826 crore in Q1FY25, up from ₹47,084 crore in Q1FY24. This growth reflects a rising interest in home ownership, bolstered by favorable market conditions and government initiatives aimed at promoting affordable housing.
- Auto Loans: Similarly, auto loans also experienced positive growth, with sanctions rising to ₹25,022 crore from ₹22,823 crore year-on-year. The automotive sector has been witnessing a resurgence as consumers are more inclined to make significant purchases, particularly in the wake of improved economic conditions.
- Personal Loans: Sanctions in personal loans grew 12% year-on-year, reaching ₹71,306 crore compared to ₹63,494 crore in Q1FY24. This indicates that consumers are increasingly relying on personal loans for various needs, from medical expenses to travel.
- Gold Loans: Notably, gold loan sanctions surged by 26%, climbing to ₹79,217 crore in Q1FY25 from ₹62,834 crore in the same quarter last year. This can be attributed to the rising popularity of gold loans as a quick financing option for individuals seeking short-term liquidity.
- Consumer Loans: Consumer loan sanctions also showed positive momentum, growing to ₹34,466 crore in Q1FY25 from ₹29,885 crore in Q1FY24.
Areas of Concern
Despite the overall positive growth in loan sanctions, certain segments are showing signs of weakness. The construction equipment loans have exhibited a negative growth trend, which may reflect a slowdown in the construction and infrastructure sectors. This could be a concern for the overall economic recovery, particularly if it persists in the coming quarters.
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K.V. Srinivasan, co-chairman of FIDC and CEO of Profectus Capital, noted, “Generally, the April-June period is a soft quarter. However, there has been an uptick in housing and auto loans, which is an encouraging sign.” He emphasized that the satisfactory monsoon and a soft interest rate regime could spur capital expenditure and credit offtake in the second half of the financial year.
Future Outlook
Looking ahead, the trends in NBFC loan sanctions will largely depend on the stance of the Reserve Bank of India (RBI) regarding interest rates. Any changes in the RBI’s monetary policy could significantly influence consumer behavior and borrowing patterns. Srinivasan indicated that the RBI’s cautious approach towards growth and practices in certain loan segments may lead to a moderation in the unsecured credit and gold loan segments.
Overall, the latest data reveals a promising start for the NBFC sector in FY25, driven by strong performances in home and auto loans. The upcoming months will be critical in assessing whether this growth trajectory can be sustained amid potential headwinds and changing economic conditions. As consumers continue to show an appetite for borrowing, it will be essential for NBFCs to navigate the evolving landscape effectively to maintain momentum in loan sanctions.
