Retail loans in India could triple by 2030, pushing household leverage to 34% by fiscal year 2031, up from around 23% at the end of 2024, according to a new S&P Global Ratings report.
Finance companies are expected to outpace banks in loan growth, with their loan books expanding faster than the banking sector's anticipated 14% growth rate, the report said. Despite this rapid growth, the finance companies' loan portfolios remain largely unseasoned, buoyed by strong economic growth supporting retail repayment capacity.
"We view the strength in retail lending as a competitive advantage, particularly as finance companies lead in certain retail products," said Geeta Chugh, credit analyst at S&P Global Ratings.
Most upper-layer finance companies maintain robust capital levels, providing the capacity for credit growth and serving as buffers against potential downside risks over the next two years.
Chugh added that recent measures by the Reserve Bank of India (RBI) will temper excessive lending enthusiasm, improve compliance, and protect customers.
The report highlighted that strong underwriting practices among Indian lenders will support asset quality, with a focus on low-risk customers and conservative loan approval rates.
While finance companies' funding remains sensitive to market confidence, those with strong parent companies benefit from access to more competitive rates. Emerging co-lending models are also helping alleviate funding pressures.
Both rated and unrated finance companies possess sufficient capital to sustain high loan growth, according to the report.
The RBI has also noted that the Indian financial system is resilient, benefiting from broader macroeconomic stability. The banking sector’s strong capitalisation and improved balance sheets reflect a higher capacity for risk absorption, while the non-banking financial company (NBFC) sector and Urban Cooperative Banks are also showing progress.
Despite the stability in the financial sector, the central bank emphasised the need for ongoing vigilance in identifying and managing emerging risks.
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