Indian banks’ struggles with bad loans over the past three years have opened an opportunity to ramp up lending for so-called non-banking financial companies (NBFCs), which are not as strictly regulated as banks.
With their share of total credit rising, new players and new investors have piled into the NBFC market.
The latest such player is Incred. Backed by Deutsche Bank’s former co-CEO Anshu Jain, it lends to individuals and small- and medium-sized enterprises (SMEs) including start-ups.
Saurabh Jhalaria, who heads Incred’s SME division, says the company aims to disburse $234 million in new credit by next March. As much as 60 per cent would be lent to SMEs, he said.
“There is great demand for credit from small entrepreneurs, but supply is very limited,” Jhalaria told Reuters, referring to the reluctance to lend among state banks.
Public sector lenders led by State Bank of India and Punjab National Bank, which as a group account for two third of banking assets, are saddled with bulk of India’s $150 billion in stressed loans. Criminal investigations into some loan defaults have made bankers extremely cautious of extending new credit.
The process of approving loans has become lengthier and requires lots of paperwork. Banks are also reluctant to lend without matching collateral. In some cases, they even demand collateral twice the value of the loan.