Key Points

These institutions offer a wide range of financial services, and their credit ratings depend on how strong and stable their business models and finances are.

According to Fitch, large NBFIs with a proven track record are earning more trust from investors and lenders. This growing confidence is helping them stay ahead of smaller players in the sector.

By the end of September 2024, 17 major NBFIs tracked by Fitch had increased their share of the total loan market to 38 per cent, up from 30 per cent in March 2022. These leading lenders recorded an annual loan growth rate of 20 per cent during this period, much higher than the 9 per cent growth rate of the overall NBFI sector.

These big NBFIs have also become financially stronger. Their debt-to-equity ratio -- a measure of how much they borrow compared to their own funds -- dropped from 4.5 times in 2021 to 4.3 times by mid-financial year 2025.

This improvement came from raising more capital and keeping profits within the business, especially during the COVID-19 pandemic.

Lower debt levels help reduce the risk of financial trouble if loan repayments slow down. Fitch expects this trend to continue, with most NBFIs using their earnings to fund future growth rather than paying out large dividends.

Despite slower global economic growth, India's NBFI sector continues to expand. The sector includes a wide variety of companies offering different types of loans.

In cities, competition is tough for secured loans like home or car loans. But in rural areas, some NBFIs face less competition from banks. However, higher costs and greater credit risks in rural lending can affect profitability, depending on how well the loans are managed.

Fitch also highlights that the type of loans an NBFI focuses on plays a big role in its success. Those with deep experience and large operations in specific segments tend to have more stable and sustainable businesses.

Many NBFIs lend to non-prime customers -- people who may not get easy loans from banks -- which can help them earn higher margins, unless banks enter the same market.

Large NBFIs benefit from their size and strong market position. They usually have better access to funding, more control over pricing, and lower costs.

Those that lead in their lending areas are better able to manage risks and stay profitable, even during economic ups and downs. Companies backed by large corporate groups may also get easier access to funds and benefit from group support.

Fitch says that when it rates NBFIs, it looks at how stable their business is, how much risk they take, how strong their finances are, how easily they can raise money, and how well they follow rules.

- ANI