Banks are gaining market share at the expense of non-bank lenders such as housing finance companies, retail lenders, and those giving gold loans.
There has been a steady decline in the market share of non-banking financial companies (NBFCs) in the credit market as banks have stepped up lending.
NBFCs’ share declined to a five-year low of 19.8 per cent in the first half of FY23, down from 20.3 per cent in H1FY22, and an all-time high of 23.1 per cent in H1FY19.
This reverses nearly a decade-long process when NBFCs increased their share in the country’s credit and grew more profitable than banks.
NBFCs’ market share could fall further in the forthcoming quarters as banks’ loan books continue to grow at a fast clip.
The combined loan book of 31 listed banks in the Business Standard sample grew 20.4 per cent year-on-year in the first half of FY23 compared to 11.1 per cent growth reported by 41 listed non-bank lenders.
The banks’ combined loan books grew to a record high of Rs 125.3 trillion at the end of September this year from Rs 116 trillion at the end of March and Rs 104 trillion a year ago.
In comparison, the combined loan books of the 41 NBFCs grew to Rs 30.92 trillion at the end of September this year from Rs 29.63 trillion at the end of March this year and Rs 27.83 trillion a year ago.
In the H1FY23, the NBFCs accounted for 29.4 per cent of the combined net profit of all lenders, down sharply from the pre-Covid average of around 52 per cent.
The movement in the share prices of the banks and the NBFCs suggests that equity investors expect banks to continue to grow at the expense of their non-bank peers.
The combined market capitalisation of the banks is up 26.2 per cent year-to-date (YTD) in 2022 to a record high of Rs 34.9 trillion on Friday.
In contrast, in the same period, the NBFCs’ combined market cap was down 1.7 per cent YTD to Rs 15.05 trillion on Friday.
In fact, the NBFCs’ combined market cap is still lower than their all-time high of Rs 16.45 trillion in October 2021.
NBFCs’ share in lending had more than doubled between H1F12 and H1FY19 from 11 per cent to 23.1 per cent.
In the same period, NBFCs’ half-yearly profit jumped 180 per cent from Rs 11,600 crore in H2FY12 to Rs 32,600 crore in H1FY19.
In comparison, banks reported a combined net loss of Rs 1905 crore in H1FY19 compared to a net profit of Rs 32,644 crore in H1FY12.
The analysis is based on the half-yearly balance sheets and profit and loss accounts of 42 listed banks and 41 listed NBFCs.
The bank sample includes formerly listed public sector banks such as Corporation Bank, Oriental Bank of Commerce, Dena Bank, Andhra Bank, and State Bank of Hyderabad, which were subsequently merged with other public sector banks.
According to analysts, the relative decline in the non-bank lending space started in 2018, when Infrastructure Leasing & Financial Services (IL&FS), one of the country’s top NBFCs, defaulted on payment to lenders, triggering a funding crisis.
“The IL&FS crisis dried up funding for many second- and third-tier NBFCs, forcing them to slam brakes on growth and even shrink their balance sheets,” said Dhananjay Sinha, director and head strategy and equity at Systematix Institutional Equity.
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