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Is the NBFC Party in India Coming to an End?
Sep 25, 2018

Shadow Banking in India has outperformed the traditional private and public-sector banks in India in recent times.

Credit growth in non-banking financial companies (NBFCs) has seen robust growth in recent years. From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks.

A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBs has seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap.

But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

Such a liquidity crisis will increase lending costs for NBFCs. Once borrowing costs rise for NBFCs, their profitability is bound to take a hit.

One way to counter that would be to raise their lending rates. But then, it would make them less competitive as compared to banks.

In times like these, I believe, NBFCs with strong asset liability management will come out stronger. On the other hand, NBFCs with a low capital base will struggle in the upcoming high interest rate period.

Data Source: Handbook of Statistics on the Indian Economy, RBI

This Chart Of The Day was published in The 5 Minute WrapUp - A Safe Stock with More Than 50% Upside

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