RBI's Regulatory Steps May Ease Lenders' Strong Credit Growth, Says S&P Global

The macroprudential measures by the Reserve Bank of India is likely to of Indian lenders, S&P Global Ratings said in a report on Tuesday.

"The RBI's decision to raise risk weights on unsecured personal loans and loans to finance companies is specifically aimed at constraining growth and reducing interconnectedness between banks and finance companies," the global rating agency said.

S&P Global expects the growth of rated private sector non-banking finance companies to decline to an average of 18% in the current financial year from 20% a year ago. This would reflect the cumulative impact of RBI's actions, S&P Global said.

The rating agency expects non-banking finance companies to grow at 14% and said that they will sustain loan growth stronger than the banking sector. "The finance companies' loan book is unseasoned. Strong economic growth has supported retail repayment capacity," he said.

On the other hand, Indian lenders' strong underwriting will support asset quality, which shows in their focus on lending primarily to low-risk customers and generally low loan approval rates.

It also expects banks and non-bank lenders' retail loans to triple by 2030, driving household leverage to 34% by 2030-31 (Apr-Mar) from about 23% at end 2024.

"We see the strength in retail lending as a competitive edge, with finance companies dominating in some retail products," Credit Analyst Geeta Chugh at S&P Global said.

Generally, upper-layer finance companies have strong capital levels, which will support credit growth over the next two years and provide downside buffers.

"We anticipate recent actions by the Reserve Bank of India (RBI) will curtail lenders' overexuberance, enhance compliance, and safeguard customers," Chugh said.

Overall, funding for financial companies remains sensitive to confidence levels, but companies with strong parentage have better access to competitive rates. Emerging co-lending models are easing funding pressure, the report added.