Bank credits to non-banking finance companies (NBFCs) have declined by more than Rs 6,000 crore in first quarter of current financial year (Q1FY20). Credit disbursals by NBFCs dropped by a third in the year to March raising worries over the solvency issue gripping other NBFCs after the implosion of IL&FS in September last year.
NBFCs and housing finance companies account for 23% of credit to the Indian economy. Indiscriminate loans chasing high valuations have led to poor asset quality for the sector. RBI data showed that bad loan ratio of NBFCs climbed to 6.6% at the end of March this year. It was 3.6 per cent in March of 2013.
Besides, auto sector, the worst-hit till now on account of the slowdown, saw credit from NBFCs contract nearly 10% at the end of May. Passenger vehicle sales fell 18.4 per cent in the first quarter and monthly passenger vehicle sales in June fell by the biggest margin in 18 years.