Foreign financiers that fall outside the traditional banking system are pushing the growth of nonbank lending in India.
According to the Wall Street Journal, the country is seeing a surge in alternative lending from global players such as KKR and Goldman Sachs. While the amount of the loans being offered are still much smaller than those distributed by the big banks, the sector is still growing quickly.
Research from India Ratings & Research revealed that lending by nonbank finance companies increased 40 percent to an estimated $200 billion within India’s economy over the last two years.
“It’s a pretty attractive [business] from a risk-reward perspective,” B.V. Krishnan, an executive at KKR in India, told WSJ. Krishnan explained that the expected yields from the loans are in the high teens and that KKR has lent roughly $4 billion to Indian companies through two non-bank lending firms it runs.
Many of the country’s nonbank financial firms are specialized lenders and reportedly borrow money from Indian banks and then lends to companies and individuals that the banks may consider too risky.
“Banks don’t like to do too-small transactions,” said Arulselvan D, CFO of nonbank lender Cholamandalam. Cholamandalam reportedly has $5 billion in assets, and its profits have increased 42 percent in the quarter that ended Sept. 30.