News | India's Government-Owned Nonbank Financial Institutions Poised for Robust Growth Amid Economic Support

India's Government-Owned Nonbank Financial Institutions Poised for Robust Growth Amid Economic Support

News

27 May 2025

2 min read

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India's government-owned nonbank financial institutions (NBFIs) are set to experience significant growth, bolstered by strong policy backing and their pivotal role in national development. According to a recent S&P Global Ratings report, these institutions are expected to expand their market share over the next two years, driven by their alignment with the country's strategic economic objectives.

"Financial services is one of the four strategic sectors in India. As such, Government-Related Entities (GREs) in the sector are more likely to benefit from government support," stated Deepali Seth-Chhabria, credit analyst at S&P Global Ratings. She emphasized that government linkages provide these entities with financial flexibility, access to cheaper funding, and mechanisms for asset quality support.

The report highlights that loan growth for financial GREs is projected to remain around 15% annually over the next two years. This growth is fueled by mandates to develop strategic sectors, including infrastructure and renewable energy. Entities like the National Bank for Financing Infrastructure and Development (NaBFID) and the Indian Renewable Energy Development Agency Ltd are expected to scale up their operations significantly from a low base.

While asset quality varies across institutions, sovereign exposure and government guarantees help mitigate associated risks. Credit costs have improved and are currently better than peers; however, they are anticipated to rise as loans mature and recoveries potentially decline.

Earnings for development financial institutions focusing on sectors such as small industries (SIDBI), agriculture (NABARD), and housing (NHB) remain moderate. Despite benefiting from lower funding costs, these entities often operate with constrained margins due to their policy-driven roles and lending caps.

In summary, India's government-owned NBFIs are on a trajectory of robust growth, underpinned by strategic policy support and their integral role in advancing the nation's economic development goals.

Reference: ET BFSI