Home >Industry >Banking >Non-banks remain wary of extending large loans

Mumbai:Non-banks and mortgage lenders are fighting shy of extending large wholesale loans, choosing instead to focus on individual borrowers following the coronavirus pandemic.

In the last three months, non-bank lenders like Piramal Enterprises, Indostar Capital Finance and Indiabulls Housing Finance have reiterated their intention to trim loans to companies. The trend started last year after the pandemic broke out, when Edelweiss Financial Services and IIFL Finance said they want to gradually move away from wholesale lending.

Experts said that some of it is being driven by the fact that investors and lenders to non-banks are more comfortable with retail exposures. Retail loans are seen to be safer as lenders find it easier to recover from individuals.

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“One needs to be certain that NBFCs are not just tweaking asset classification policies, instead of moving out of wholesale. As we have seen in the past, there are concerns about how an NBFC classifies a certain loan—retail or wholesale—and how watertight those compartments are," said a banking analyst, on condition of anonymity.

Last week, Indiabulls Housing Finance Ltd said it wants to halve its wholesale loan book by December 2022. As of 31 December, the company said that 35% of its asset book comprised non-housing loans while its total loan book stood at 70,282 crore. The lender plans to double the retail customer base by March 2025 as disbursals pick up on the back of rising home sales.

“We will be able to realize better yields on these retail loans and this will also serve to diversify our loan book and customer base," Gagan Banga, vice-chairman and managing director of Indiabulls Housing told analysts on 12 February.

According to the Reserve Bank of India’s Report on Trend and Progress of Banking in India 2019-20, gross advances of non-bank lenders rose 1.9% in FY20 from the previous financial year to 23.6 trillion—and this was largely due to a 21.6% rise in retail loans. Loans to industries and services (which included commercial real estate loans) shrank 0.3% and 3.3%, respectively over the same period. RBI said that there was a sharp reduction in credit growth to all sectors, barring retail. During 2019-20, retail loans were driven up by housing loans and vehicle loans.

Piramal Enterprises said it’s working to change its financial services model from a real estate wholesale NBFC to a well-diversified lender. Its wholesale loan book shrank 20% between March 2019 and December 2020.

“Today, in 2021, we are positioning ourselves for our next transformation, our boldest one yet. You would ask why now? Many radical changes have happened in real estate and wholesale lending landscape in the last few years. When such changes happen, it is always useful to step back and re-look at our strategy," Ajay Piramal, chairman, Piramal Enterprises told analysts on 11 February. Piramal is in the process of taking over DHFL, which has a large retail customer base.

Non-bank lenders have faced multiple headwinds since Infrastructure Leasing and Financial Services defaulted in September 2018, choking the liquidity tap. When covid-19 struck, the situation worsened—borrowers got regulatory forbearance but NBFCs weren’t being able to avail of similar benefits from their lenders.

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