UBS sees credit growth picking up in second half, NBFCs likely to outpace banks

Vishal Goyal, Managing Director and India Financials Analyst at UBS Global Research, expects the Indian credit system to see 11–12% growth in the second half of the year, largely driven by consumption and SME lending.

He said, “The H2 expectations are generally high, we are all expecting the rebound in second half and thanks to the stimulus from government in various forms, whether it starts from the IT rebate, GST, plus the monetary easing which we have seen, so we are from deficit liquidity to now surplus liquidity. All this should enable some pickup in the credit growth.”

He added that consumption is expected to remain the main driver of overall credit growth, as corporate capital expenditure is still too small to significantly impact the system.

Growth will largely be supported by consumption, with SME lending also playing an important role. UBS’s recent thematic research over the next five years highlights that both these segments have considerable potential for further expansion.

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UBS Global Research expects housing to remain the largest product for NBFCs, followed by business loans targeting SMEs. Consumption lending in India is still relatively small, with credit cards accounting for just 1% of GDP and personal loans combined with credit cards around 8% of GDP, indicating significant room for growth.

In the gold finance segment, strong gold prices have supported impressive growth, with the AUM registering a compound annual growth rate of around 30% over the past five years. While future growth will depend on gold price stability, UBS expects the segment to continue expanding at approximately 15% CAGR, despite the already high base.

For power finance, UBS remains positive due to reasonable valuations and decent return on equity. Loan growth in this sector has generally been in the low to mid-teens, but if growth surprises on the upside, there is potential for a favourable re-rating of companies in this segment.

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