Mumbai, March 16: Non Banking Financial Companies (NBFCs) are slowly emerging as the dark horse in the SME lending space as rising bad loans in the public sector banking system has led to a loss of market share of government-owned banks.
According to market research firms, NBFCs’ increasing focus on the rural and semi-urban areas in their bids to push credit growth has started to give them dividends.
“While public sector banks are enabling financial inclusion, the MSME segment is increasingly becoming attractive for the NBFCs and private banks from a profitability and priority sector lending perspective. NBFCs and private banks have aggressively stepped up acquisition efforts through branch expansion and digitization initiatives,” a report by Trans Union CIBIL- SIDBI said.
According to the report, market share of NBFCs rose to 10.4% by the end of December 2017 from 7.9% in December 2015. During the same period, market share of PSBs has declined to 55% from 61.5% reported two years earlier.
Meanwhile, contribution of private banks has grown from 25.4% to 28.5% in the MSME lending space in the last two years.
Notably, India is home to 51 million MSME units employing about 117 million people across various sectors. MSME sector contributes around 37% to country’s GDP and 43% of overall exports.
Analysts are of the opinion that rising bad loan is one of the major reasons behind decline in PSBs market share in MSME lending segment.
“Public sector banks have higher NPA rate in the MSME segment. The NPA of the PSBs has increased from 10.3% in December 2015 to 12.4% in December 2017,” the CIBIL report said. In comparison to public sector lenders, bad loan of private sector banks stood at 3.7% during this period. For NBFCs, bad loans from MSME segment have increased to 5%, albeit slowly.
Going ahead, NBFCs share in SME lending is likely to increase steadily in the coming years. “We expect NBFCs to outperform banks with sharper focus on small-ticket loans, adoption of technology and focus on smaller towns and cities,” credit rating agency, CRISIL said.