Will India's Finance Companies' Loan Books Surge by 21-22% Over the Next Two Years?
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Synopsis
Discover how India's finance companies are set to outpace traditional banks with loan growth projections of 21-22% over the next two years, driven by a strong retail lending presence and solid capital levels. This report explores the implications for the financial landscape.
Key Takeaways
- Fincos to grow loan books by 21-22%.
- Comparison with banking sector growth of 11-12%.
- Strong position in retail lending drives growth.
- Stricter underwriting standards to manage risks.
- Potential decline in unsecured personal loan growth.
New Delhi, Sep 11 (NationPress) India's leading finance companies (fincos) are expected to see their loan books expand by 21-22 percent in the next two years, significantly outpacing the banking sector's projected growth of 11-12 percent. This trend indicates a notable shift in market share towards fincos, according to a recent report.
A key factor driving this growth is the robust presence of these companies in retail lending, a sector that remains relatively underdeveloped in India, as highlighted by S&P Global Ratings.
Upper-tier fincos are characterized by their solid capital positions, which will facilitate sustained loan growth and mitigate risks.
The report anticipates that earnings will maintain positive momentum, supported by slightly increased net interest margins in the upcoming years, contributing to a financial buffer.
However, stricter underwriting standards are expected to temper growth ambitions and reduce potential risks within this financial segment, as noted by S&P Global Ratings credit analyst, Geeta Chugh.
Despite this, a slowdown in certain lending products may persist due to an enhanced emphasis on risk management.
This trend is evident in improved underwriting practices, which focus primarily on low-risk borrowers and generally maintain low loan approval rates.
The report also indicates that tighter regulatory oversight in specific lending areas, such as gold-backed loans, could further limit asset expansion.
While the asset quality for fincos remains stable, there are pockets of stress in microfinance and unsecured loans, according to Chugh.
This stress is linked to rapid growth and overly enthusiastic lending practices towards borrowers with weakened credit profiles, often neglecting their repayment capabilities.
Particularly, unsecured personal loans, especially small-ticket loans with a higher risk appetite, have seen rising leverage and delinquency rates.
The Reserve Bank of India's proactive adjustments to the risk weight assigned to unsecured retail loans, along with stricter underwriting standards, may result in a slight decline in the growth rate of unsecured personal loans to around 8-9 percent for the fiscal year ending March 2025, the report concluded.
Point of View
I believe the financial landscape is evolving rapidly in India. Fincos are poised to take a larger share of the market, thanks to their strong focus on retail lending. However, the emphasis on risk management through stricter standards is a prudent approach to ensure long-term stability in this sector. We must watch how these dynamics play out in the coming years.
NationPress
12/09/2025
Frequently Asked Questions
What is the projected growth rate for India's finance companies?
India's finance companies are projected to grow their loan books by 21-22% over the next two years.
How does this compare to the banking sector?
The banking sector is expected to see a loan growth of 11-12% during the same period.
What factors are driving this growth?
Key drivers include a strong presence in retail lending and robust capital levels among upper-tier fincos.
Are there any risks associated with this growth?
Yes, stricter underwriting standards are being implemented to manage risks, particularly in unsecured lending.
What impact will regulatory changes have on fincos?
Tighter regulatory supervision may limit asset expansion in certain lending niches, including gold-backed loans.
