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Business Standard
06-08-2025
- Business
- Business Standard
Hero FinCorp halts unsecured loans, aims 14% growth in FY26 disbursements
With an eye on making its loan book more robust, IPO-bound Hero FinCorp Ltd (HFCL) has stopped giving unsecured loans due to concerns about borrowers being over-leveraged. It will recalibrate its balance sheet with a focus on secured assets and aims to grow disbursements by 14 per cent in the current financial year (FY26). Abhimanyu Munjal, managing director and chief executive officer, HFCL, told Business Standard that the finance company has made significant changes in business strategy and operations. 'We have stopped unsecured loans. In the unsecured space, we were operating through partners and the open market. Both have been stopped because of the over-leverage issue in the market. The company thought it was better to focus on existing customers and work in loan against property, home loans, and vehicles,' Munjal said. According to CRISIL's analysis, measures such as strengthening credit underwriting and investing in analytics to improve collections in prior years had helped reduce bad loans from 7.9 per cent in March 2022 to 4.3 per cent in March 2024. However, due to challenges like elevated average indebtedness in the unsecured personal loan segment, overall gross non-performing assets (GNPAs) rose to 5.0 per cent by the end of December 2024. The share of unsecured personal loans constituted 30 per cent of assets under management (AUM) as of December 31, 2024, CRISIL said. GNPAs further rose to 5.5 per cent in March 2025, according to HFCL's FY25 annual report. On loan book growth, Munjal said: 'We are seeing muted credit growth in the whole industry. I am fairly certain we should maintain industry or above-industry levels.' He said this year is about re-engineering the balance sheet to make it very robust so that the company can push for growth from the second half of FY26. 'We have so far recorded 14 per cent Y-o-Y growth in Q1FY26. We will maintain a similar level of disbursements. The early indicators of monsoon are positive, and for us, a lot of our vehicle growth comes in the post-monsoon festive season,' he said. The company's disbursements stood at Rs 30,337 crore in FY25, down from Rs 32,145 crore in FY24. Outstanding loans were at Rs 49,876 crore at the end of March 2025, according to its annual report. Asked about the benefits from softening interest rates in raising funds, Munjal said around 55–60 per cent of liabilities are term loans. The marginal cost of funds-based lending rate (MCLR) has not come down dramatically, as the major component of MCLR is deposit cost, which takes time to adjust. 'We have proactively moved to shorter-term MCLRs where we are going to see the benefits,' he added. The external benchmark lending rates (EBLR) on loans have come down, but the share of EBLR-linked loans in bank borrowing is very small — around 10–15 per cent. In that segment, the company has seen a benefit.
Mint
05-08-2025
- Business
- Mint
Is credit demand really slowing? RBI's liquidity push tells a different story
Lately, market watchers have voiced concern over tepid bank credit growth and its implications for the broader economy. With liquidity flush in the system, many have argued for further rate cuts to stimulate credit offtake. It seems some commentators are channelling the spirit of the iconic 1990s ad: Yeh dil maange more. Despite the Reserve Bank of India (RBI) frontloading 100 basis points (bps) worth of rate cuts over the past six months and infusing liquidity of nearly ₹10 trillion, including an impending ₹2.5 trillion via CRR cuts, calls for more policy easing persist. With inflation pressures easing (largely due to food), some believe the central bank still has space to act. From a banker's lens, credit demand has slowed sharply since the start of FY26, with Q1 accretion nearly half of what it was in Q1FY25. But here's the key question: Has credit demand actually fallen? And more importantly, what's the right metric to assess it? Do we measure credit through the borrower's need for funds, or through the volume of credit disbursed by a specific channel, like banks? While bank credit volumes are central for equity analysts tracking banks, should they hold the same primacy in a macroeconomic assessment? When the central bank calibrates system liquidity in line with its monetary policy stance, its primary objective is to ensure adequate credit flow to the productive sectors of the economy. Importantly, the central bank should remain largely agnostic about which channel—banks, non-banking financial companies (NBFCs), and capital markets—provides this credit. The transmission of policy rates and liquidity impulses varies across these channels, influencing the volume of credit each one delivers. Another key factor is each channel's capacity to meet the credit needs of different borrower segments. Let's unpack this. The current monetary policy easing cycle has been unprecedented, with the RBI acting as a veritable 'fountainhead' of liquidity to accelerate transmission. This surge of liquidity has flowed through different channels—banks, NBFCs, and capital markets—at varying speeds. The interest rate transmission has been most rapid in capital markets, followed by banks and then NBFCs. Notably, transmission via External Benchmark Linked Rate (EBLR) lending by banks is immediate. These differences have reshaped the incremental contribution of each channel in meeting credit demand. For instance, following the 100bps cut in the repo rate, commercial paper (CP) rates have declined by 100-150bps, while corporate bond yields have eased by approximately 40-60bps, depending on the tenor. In contrast, for banks, EBLR-linked lending rates, which account for roughly 45-55% of loans (adjusted for fixed-rate loans), have fallen by 100bps. However, MCLR-based rates (~35% share) have only declined by 25-50bps, as banks seek to protect their margins. This divergence is altering the composition of credit flow in the economy. Net corporate bond issuances more than doubled to approximately ₹2 trillion in Q1FY26 compared to the same period last year. CP issuances also rose around 1.5x to ₹60,000 crore. As capital markets see a surge in activity, the sharp slowdown in bank credit, which fell to ₹2.5 trillion in Q1FY26, nearly half of Q1FY25, has been largely offset. On balance, total resources mobilized by the commercial sector through banks and capital markets remained broadly stable year-on-year, at around ₹5 trillion in Q1FY26. On balance, credit demand has not meaningfully declined, despite the drop in bank advances. What has changed is the composition of credit across different funding sources. A borrower's ability to access the lowest-cost funding depends on their credit profile and market presence. Highly rated corporate borrowers, for instance, have ramped up market borrowings and taken advantage of EBLR-linked loans tied to benchmarks like T-Bills, where policy transmission has been swift. In contrast, MSMEs, lacking access to non-bank funding, have become the primary focus for banks. The relatively higher yields on MSME loans have also incentivized banks to lend more to this segment, further supported by the government's credit guarantee scheme. Retail borrowers, meanwhile, have benefited from aggressive competition between banks and NBFCs. However, signs of moderating risk appetite suggest that households are now more cautious and are shying away from additional leverage. To sum up, credit demand remains broadly stable compared to last year, with the RBI's liquidity measures ensuring that the economy's credit needs are met at lower rates. What's evolving is the composition of credit across channels, shaped by the varying pace of policy transmission, which is a healthy development. It may be prudent to allow these liquidity impulses to fully play out and spur economic activity before considering further stimulus. Additional easing could lower rates further but may not materially lift credit demand. Better, then, to wait until the economy truly thirsts for more, before giving in to the 'dil maange more' chorus. The authors are chairman, and chief economic advisor, respectively, at Union Bank of India. Views are personal.
Time of India
18-06-2025
- Business
- Time of India
Lending yields set to shrink in FY26 as banks play it safe
Mumbai: Banks are expected to face downward pressure on lending yields in the current fiscal year amid growing caution in the unsecured lending space, a slowdown in high-yield retail loan growth, and lower policy rates. Analysts forecast that the yield on advances could drop by around 50 basis points year on year to 8.6% in the coming months-against a peak of 9.48% in FY24-as banks increasingly shift focus to lower-risk, lower-return assets in response to evolving credit conditions. Banks' net interest margins (NIMs) are also projected to contract by 20-25 basis points year on year in FY26, they said. "The yield on advances will drop in FY26, as loans linked to the repo rate will be re-priced downward immediately, while those linked to EBLR (external benchmark lending rate) will adjust over the medium term," said Sanjay Agarwal, senior director at CareEdge Ratings . by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Many Are Watching Tariffs - Few Are Watching What Nvidia Just Launched Seeking Alpha Read Now Undo "Banks remain cautious about lending to unsecured, high-yielding asset classes. There could be some competition with the slowing credit growth resulting in softening yield on advances," he added. Agencies Bonds Corner Powered By Lending yields set to shrink in FY26 as banks play it safe Mumbai banks anticipate lower lending yields this fiscal year. Caution in unsecured loans and slower retail growth contribute. Policy rate cuts also play a role. Analysts predict a yield drop to 8.6%. Net interest margins may contract. Repricing of loans linked to external benchmarks will impact private banks. Deposit repricing lags will further squeeze margins. Jiraaf launches India's first Bond Analyser to decode fixed-income investing Indian bond yields, swap rates ease after dovish comments from RBI chief Banks may go for short-term G-Secs with CRR cut in Sept RBI accepts bids worth Rs 9,296 crore in switch auction Browse all Bonds News with According to data from CareEdge Ratings, private sector banks saw their yield on advances fall from 10.95% in FY24 to 10% by the end of FY25. The rating agency expects this figure to decline further to 9.64% in FY26, highlighting the sector-wide impact of monetary easing. The Reserve Bank of India (RBI) had raised the repo rate by 250 basis points through FY23, which was held steady at 6.50% until February 2025. This tightening phase had enabled banks to pass on higher borrowing costs, boosting lending yields. However, with a 100-basis point cut in repo rate in five months, the trend is reversing. Live Events The re-pricing of EBLR-linked loans, especially prevalent in private sector banks, where 86% of the loan book is tied to EBLR, will further weigh on yields. These banks, which also have higher credit-to-deposit (C/D) ratios, are likely to face greater margin pressure compared to their public sector counterparts. As rates fall, a structural lag in deposit repricing is expected to put additional pressure on net interest margins. In a falling interest rate environment, lending rates tend to adjust more quickly than deposit costs, particularly fixed-term deposits, which are typically repriced with a delay of two to four quarters. "The steep cut in repo rate is expected to sharply impact the net interest margins of the banks and Q2FY26 is expected to be the weakest," said Sachin Sachdeva, sector head, financial sector ratings at ICRA .
India Gazette
07-06-2025
- Business
- India Gazette
Lending rates to fall by 30 bps after RBI policy cut: SBI Report
New Delhi [India], June 7 (ANI): Lending rates are expected to fall by around 30 basis points (bps) following the recent policy rate cut, according to a report by the State Bank of India (SBI). The report highlighted that the immediate impact will be seen on loans linked to the external benchmark lending rate (EBLR), which make up about 60 per cent of the loan book of All Scheduled Commercial Banks (ASCBs). SBI said 'The steep cut on policy rates is expected to pass on to the EBLR linked loan book immediately with ASCB share of 60 per cent. Thus immediate impact on average lending rate could be around 30'. The report said the sharp policy rate cut will quickly pass through to the EBLR-linked loans, lowering borrowing costs for many customers. However, this drop in lending rates may affect banks' margins. To help manage this impact, the Reserve Bank of India (RBI) also reduced the Cash Reserve Ratio (CRR), which is expected to bring down the cost of funds for banks. SBI stated 'The reduction in CRR may not mathematically translate to any change in deposits and lending rates, however, it may have positive impact on margins (3-5 bps on NIM) of the banks'. The report estimated that bank margins or Net Interest Margins (NIM) could improve by 3 to 5 bps due to the lower CRR. The CRR cut will also reduce the base money (M0) in the system, increasing the money multiplier by 20 to 30 bps, which could have a positive effect on overall liquidity. Meanwhile, banks have already started lowering fixed deposit (FD) rates. Since February 2025, FD rates have been reduced by 30 to 70 bps. The report expects this trend to continue, with further cuts likely in the coming months. Past data shows that cuts in policy rates generally lead to pressure on bank margins. While the exact impact will differ across individual banks, a general compression in NIM is expected. The SBI report added that the future path of monetary policy will depend on economic data and evolving conditions. While policy space is limited, the recent large profit transfer from the RBI to the government has improved fiscal flexibility. For now, the report expects no change in policy rates in the next quarter. (ANI)
Economic Times
07-06-2025
- Business
- Economic Times
Lending rates to fall by 30 bps after RBI policy cut: SBI Report
Lending rates are expected to fall by around 30 basis points (bps) following the recent policy rate cut, according to a report by the State Bank of India (SBI). The report highlighted that the immediate impact will be seen on loans linked to the external benchmark lending rate (EBLR), which make up about 60 per cent of the loan book of All Scheduled Commercial Banks (ASCBs). SBI said, "The steep cut on policy rates is expected to pass on to the EBLR linked loan book immediately with ASCB share of 60 per cent. Thus immediate impact on average lending rate could be around 30".The report said the sharp policy rate cut will quickly pass through to the EBLR-linked loans, lowering borrowing costs for many customers. However, this drop in lending rates may affect banks' margins. To help manage this impact, the Reserve Bank of India (RBI) also reduced the Cash Reserve Ratio (CRR), which is expected to bring down the cost of funds for banks. SBI stated "The reduction in CRR may not mathematically translate to any change in deposits and lending rates, however, it may have positive impact on margins (3-5 bps on NIM) of the banks".The report estimated that bank margins or Net Interest Margins (NIM) could improve by 3 to 5 bps due to the lower CRR. The CRR cut will also reduce the base money (M0) in the system, increasing the money multiplier by 20 to 30 bps, which could have a positive effect on overall banks have already started lowering fixed deposit (FD) rates. Since February 2025, FD rates have been reduced by 30 to 70 bps. The report expects this trend to continue, with further cuts likely in the coming data shows that cuts in policy rates generally lead to pressure on bank margins. While the exact impact will differ across individual banks, a general compression in NIM is expected. The SBI report added that the future path of monetary policy will depend on economic data and evolving conditions. While policy space is limited, the recent large profit transfer from the RBI to the government has improved fiscal flexibility. For now, the report expects no change in policy rates in the next quarter.
