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Key Points

According to a recent S&P Global report, India's government-owned nonbank financial institutions are poised for significant growth in the coming years. By leveraging government support and strategic policies, these institutions will likely increase their market share. The report highlights key players like NaBFID and IREDA, which are expected to scale up operations. Despite challenges such as exposure to weak borrowers, government-linked entities maintain financial stability through sovereign backing and policy support.

Key Points: India Nonbank Financial Entities Set for Growth S&P Report

  • India's nonbank GREs to expand market share
  • NaBFID and IREDA enhance operations
  • GREs benefit from government support
  • Future growth driven by strategic mandates
3 min read

India's govt-owned nonbank financial institutions headed for strong growth: Report

India's govt-backed financial entities gain market share, boosting economic development says S&P report.

"Government linkages provide financial flexibility, access to cheaper funding. - Deepali Seth-Chhabria/S&P Global Ratings"

New Delhi, May 26

Government-owned nonbank financial institutions in India will likely gain more market share in the coming year or two since they play a key role in supporting economic development as part of the country's official policy, according to an S&P Global report released on Monday.

"Financial services is one of the four strategic sectors in India. As such, Government-Related Entities (GREs) in the sector are more likely to benefit from government support," said S&P Global Ratings credit analyst Deepali Seth-Chhabria.

"This is particularly so for those that play policy roles. In our view, government linkages provide financial flexibility, access to cheaper funding, and a mechanism for asset quality support," she added.

GREs dominate the financial sector in India. Many nonbank GREs operate in segments that are of national interest. The loan growth for financial GREs is expected to stay at about 15 per cent per annum over the next two years, aided by mandates to drive the development of strategic sectors, according to the S&P report titled 'Indian Government-Owned Financial Institutions: In The Fast Lane.'

A relatively higher growth is expected for entities like the National Bank for Financing Infrastructure and Development (NaBFID; unrated) and the Indian Renewable Energy Development Agency Ltd, both of which are expected to scale up their business from a low base, according to the report.

"Asset quality is a mixed bag. Some nonbank financial institutions are exposed to weak borrowers, though sovereign exposure and guarantees from the government partially mitigate the risk," said S&P Global Ratings credit analyst Geeta Chugh.

"Credit costs for the sector have improved and are better than peers'. However, we expect credit costs for the sector to rise as their loans season, recoveries dwindle, and benefit of excess provisions created in previous years tails off."

Earnings are moderate for the development financial institutions, including those that focus on small industries (SIDBI) agriculture (NABARD), and housing (NHB). The same follows for the two financial GREs in India we rate, Indian Railway Finance Corp. and the Export-Import Bank of India.

These entities tend to have weak margins despite their lower cost of funding. Margins are constrained by the entities' policy roles. Some operate on cost-plus basis while others have a cap on lending margins for the refinance business, the report points out.

In contrast, Power Finance Corporation, REC Ltd. and IREDA make higher margins as they lend to relatively weaker borrowers, the report added.

- IANS

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Reader Comments

R
Rajesh K.
This is excellent news for our infrastructure development! 🇮🇳 Government-backed financial institutions can take risks that private players won't, especially in renewable energy and railways. Hope this translates to more jobs and better facilities across India.
P
Priya M.
While growth is good, I'm concerned about asset quality. We've seen what happened with some NBFCs in the past. The government must ensure strict monitoring so public money isn't wasted. Accountability is key!
A
Amit S.
NaBFID and IREDA getting more funds is a masterstroke! India's future is in renewable energy and infrastructure. These institutions can help us compete with China in these sectors. Jai Hind!
S
Sunita R.
As someone from a small town, I've seen how NABARD and SIDBI loans have changed lives. More power to these institutions! But please simplify the loan application process - many small farmers and businessmen find it too complicated.
V
Vikram J.
The report mentions weak margins due to policy roles. This is the right approach - development institutions shouldn't be profit-hungry like private banks. Their social impact matters more than quarterly profits.
N
Neha P.
Hope this growth reaches the grassroots level. Often we hear about big numbers but don't see changes in our local communities. More transparency in how these funds are utilized would build more trust. 🙏

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