NBFCs& HFCs May Experience New Lines of Finance Amid HDFC’s Exit from the Borrowing System

NBFCs& HFCs May Experience New Lines of Finance Amid HDFC’s Exit from the Borrowing System

Ira Singh
22 July’23

Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) are poised to witness a potential surge in new lines of finance following the recent announcement of HDFC, a major borrower, exiting from the borrowing system. Non-banking finance companies (NBFCs) are expected to grow faster than expected, driven by unsecured loans.

Rating agency ICRA has revised the growth outlooks for FY24 for the retail loans of NBFCs and housing finance companies, which account for the bulk of the overall sector.The NBFC-retail asset under management (AUM), estimated at around Rs 14 lakh crore as of March 2023, is expected to grow at a higher pace of 18%-20% in FY2024, up from the previously estimated level of 12-14%.One of the big drivers of this growth is the unsecured loans segment, consisting of personal and consumption loans, unsecured small enterprise loans and microfinance loans, which remain strong. At the same time, the HFC-Retail assets under management, estimated at around Rs 7 lakh crore as of March 2023, consisting of home loans (HL) and loan against property (LAP), is expected to grow at a relatively moderate 12-14%. According to Karthik Srinivasan, group head of financial sector ratings, the merger of HDFC with HDFC Bank could open up new lines of finance for NBFCs and housing finance companies. However, it would depend on the risk appetite and quantum of funds available. “Logically, lines will open up. Mutual funds have a limit for investing in the sector. Also, insurance companies have to invest in housing and infrastructure,” he said.Srinivasan said that the market could also see some disruption due to the entry of Jio Financial Services.

With a growth expectation of 10-12% in the infrastructure and other wholesale loans of NBFCs and HFCs, the total sector AUM, consisting of retail and other wholesale loans (including infrastructure loans), stood at about Rs 40 lakh crore as of March 2023, is estimated to grow at about 13-15% in FY2024, according to estimates.

Regulatory changes in insurance sector will help create value for customers: HDFC Life Chairman Deepak Parekh

The massive changes taking place on the regulatory front in the insurance space will help in ease of doing business, encourage development of longer-term products and improve persistency, thereby creating value for customers, according to HDFC Life Chairman Deepak Parekh.Addressing the company’s 23rd annual general meeting, Parekh, who till June 30 was the chairman of HDFC which got merged with HDFC Bank, said several changes that the regulator IRDAI is proposing would enhance insurance penetration, facilitate sustainable growth and ease the operating environment.

The regulator has already introduced use and file regime for faster product launches and revised the expenses of management and commission guidelines to provide greater flexibility to companies to manage their cost structures. These regulations will increase the ease of doing business, encourage development of longer-term products, improve persistency, thereby creating value for customers, Parekh said.

Further, he said that granting of composite licences, enabling distribution of other financial products by insurers and allowing insurers to set up an insurtech subsidiary, are being discussed by the government to boost stakeholders’ confidence in the insurance space. Parekh said the life insurance sector has recovered from the aftermath of the pandemic in FY23 and grew 18 per cent and collected new business premium of Rs 3.7 lakh crore compared to Rs 3.1 lakh crore in FY22.

Private life insurers grew 24 per cent in individual business and recorded a 17 per cent growth in group business during this period, according to sources.Meanwhile, HDFC Life subsidiary HDFC Pension Management Company has doubled its assets under management in 18 months, exceeding Rs 45,000 crore in FY23, Parekh said.He also said HDFC International Life has received the regulatory approval to establish a branch in the IFSC which will help the company tap new opportunities by serving the needs of global Indians.

While HDFC’s decision to exit its core NBFC and HFC businesses may have raised eyebrows initially, it is now being viewed as a blessing in disguise for other players in the financial landscape.Besides,. Customers will benefit from enhanced services, increased transparency, and improved access to innovative technologies,with the the forthcoming regulatory changes in the insurance sector.