Lending to small and medium enterprises (SMEs) is projected to grow at 11% over the next two fiscal years, said rating agency Crisil.
“We expect Non-Banking Financial Companies (NBFCs) to outperform banks with sharper focus on small-ticket loans, adoption of technology and data analytics, and focus on smaller towns and cities” over the same period, the agency said in a statement.
However, though opportunities abounded, continuous tracking of sectors was critical to managing risks, it said.
Crisil forecast 11% compound annual growth rate (CAGR) in lending to micro, small and medium enterprises (MSME) in India, over the next two fiscals. This estimate is higher than the growth of about 7% anticipated in bank credit to India Inc.
The growth estimate for lending to SMEs compares with a 13% CAGR seen in the past five fiscals ended March 2017, with NBFCs recording a fourfold increase in their credit book.
Non-bank share rises
Consequently, cumulative market share of non-banks in MSME financing rose to about 18% in fiscal 2017, from 8% five years ago.
Currently, the MSME lending market size is estimated at about ₹14 lakh crore.
While competition has intensified and asset quality has weakened, the overall opportunity remains compelling, given the huge under-penetration of formal finance in the segment, the agency said.