domestic growth, inflation and currency concerns. RBI had to resort to a tough monetary policy stance, leading to a spike in short-term rates and credit demand shifting from NCDs to banks. NBFC was a very tough space to be in. Not only their funding cost spiked, but sector-specific issues threatened to affect profitability.
Contrary to H1, October and November saw some incremental positive macro developments. While RBI reversed most of the MSF rate hike (in Sept and October), it also increased repo rate by 50bps to 7.75%, thereby making the rate hike more permanent. At a broader level, Q2 GDP improved slightly over Q1, contrary to economists’ expectations, while CAD deficit has remained low. Based on this we spoke to a number of NBFC management teams about their expectations of growth and margins in the current quarter. Broadly, the growth outlook has not changed much for most NBFCs, while margins are likely to remain stable.
Growth: While most of the NBFC segments are not seeing recovery yet, retail housing continues to stand out. It has been the most resilient sector in the past few years, despite the slowdown, and still continues to row at a steady pace. Mumbai and Delhi continue to see lacklustre volumes, while smaller towns and cities continue to grow well. With both, HDFC and LICHF, incrementally, penetrating the smaller towns, growth continues to remain fairly buoyant for them. Q3 should continue to see them delivering a steady 20-22% y-o-y loan growth according to management.
Vehicle finance, a mixed bag Vehicle finance, on the other hand, has been mixed. While commercial vehicles (CV) sales remain weak in the wake of the industrial slowdown, the used CVs space is substituting new CVs space, and in the process, benefitting SHTF versus new CV financiers like IIB, HDFC Bank and Kotak. However, overall used CV growth has also reduced in the past few quarters. SHTF management expects the CV slowdown to last another 12 months, before recovering.
Urban car sales have also declined meaningfully this fiscal. However, against this, rural has continued to grow, due to