Autobayng News Team
NBFCs in India face rising asset quality risks, especially in subprime and vehicle loans, even as strong growth and resilient gold lending support sector stability.“>
The non-banking financial companies (NBFCs) sector has expanded sharply over the past few years, often outpacing credit growth in the banking system. While growth remains strong, concerns over asset quality and rising delinquencies are surfacing.Alka Anbarasu, Senior Vice President at Moody’s Investors Service, in an interview to ET Now said NBFCs have grown rapidly in the retail space, but leverage and lending pressures are building up. “Asset quality is likely to deteriorate at the margin. We expect NPL ratios to rise by 20-30 basis points this year, particularly in microfinance, subprime mortgages, and education loans.”
Vehicle Loans Under Pressure
The vehicle finance segment is showing signs of stress. Stage-three ratios are rising even as GST cuts lower vehicle prices by 7-10%. “Commercial vehicle delinquencies will increase further, though from a relatively healthy base. The sector is closely tied to GDP growth, agriculture, and the monsoon cycle,” Anbarasu noted.She also highlighted risks from global trade frictions: “Tariff outcomes are creating uncertainty for sectors like textiles, gems and jewellery, and shrimp exports. Borrowers employed in these sectors could face repayment stress.”
Affordable Housing and Subprime Concerns
Affordable housing loans form a small part of NBFC portfolios, but stress is visible. “This segment is less than 10% of overall loan books, though higher for some players. Delinquencies have doubled for a few monoline NBFCs. We expect a 20-30 basis points rise across portfolios, led by subprime mortgages, MFIs, and education loans.”
Gold Loans Still a Bright Spot
Gold loans continue to be the most resilient product, despite RBI tightening loan-to-value (LTV) and provisioning norms from 2026. “Growth in gold loans is largely driven by higher gold prices. While RBI measures will make risk management stronger, we do not see asset quality concerns as collateral values remain high,” Anbarasu said.
Profitability Outlook
Provisioning costs and higher credit charges are weighing on NBFC profitability. But margin strength could offset the drag. “Credit costs will inch up with higher household leverage. However, lower borrowing costs and stable margins mean profitability should hold up,” she added.While demand remains strong, rising leverage and subprime exposures could test the sector’s resilience in FY25–26.
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