India’s State-Owned NBFIs Set for Rapid Growth, Backed by Strong Government Support: S&P Global Ratings

India’s government-owned non-bank financial institutions (NBFIs) are poised for robust growth over the next two years, according to a new report by S&P Global Ratings.

These institutions are expected to gain significant market share, supported by policy backing and capital infusion from the government.

S&P Forecast: 15% Annual Loan Growth

In its report titled ‘Indian Government-Owned Financial Institutions: In The Fast Lane’, S&P Global Ratings projects a 15% annual loan growth for public sector NBFIs. This surge will be largely driven by financing for 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. (IREDA) are expected to be at the forefront of this expansion. These institutions are scaling up operations and are likely to receive strong policy and capital support from the government.

Why the Government is Backing Public Sector NBFIs

The government sees public sector NBFIs as vital tools for accelerating India’s economic development. By providing capital and extending credit to key industries, these institutions play a central role in advancing national priorities.

“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,” said Deepali Seth-Chhabria, credit analyst at S&P Global Ratings, in an interview with ANI.

These government-backed financial institutions are expected to dominate India’s financial sector, particularly in lending areas linked to national interest.

Risks, Credit Costs, and Mixed Asset Quality

While the outlook is positive, S&P also highlighted underlying risks.

“Asset quality is a mixed bag. Some nonbank financial institutions are exposed to weak borrowers, though sovereign exposure and guarantees from the government partially mitigate the risk,” noted Geeta Chugh, another credit analyst at S&P.

Institutions like NaBFID, IREDA, and SIDBI currently report moderate earnings, but their exposure to riskier segments could impact future performance.

Though credit costs in the sector have been lower than those of banks and private NBFIs, S&P expects them to rise in the coming years.

“Credit costs for the sector have improved and are better than peers'. However, we expect credit costs to rise as their loans season, recoveries dwindle, and the benefit of excess provisions created in previous years tails off,” Chugh added.

In contrast, Power Finance Corp, REC, and IREDA make higher margins as they lend to relatively weaker borrowers, the S&P report added.

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