The assets under management (AUM) growth of non-banking financial companies (NBFCs) will likely remain strong in July-September considering the strong demand for loans, and multi-segment business models of various lenders.
However, analysts are expecting some compression in net interest margins due to a rise in the cost of funds as repo rate transmission continues. However, this is unlikely to have a significant impact on overall earnings.
“AUM growth is likely to remain strong across NBFCS and Affordable Housing Finance Companies (AHFCs) due to buoyant underlying demand and multi-line businesses built by NBFCs,” Centrum Broking said in a report.
The brokerage added that NIMs are likely to remain under pressure this quarter due to rise in cost of funds as repo rate transmission continues, however, it will be partially set-off by increase in yields.
According to the estimates of Motilal Oswal Financial Services, the net interest income, and net profit of non-bank lenders is expected to rise 26% year-on-year(y-o-y), and 35% y-o-y respectively in the September quarter.
On Monday, Jio Financial Services will kick-start the July-September result season of non-bank lenders.
Disbursements are expected to be strong across product segments. However, some analysts feel that vehicle finance companies and microfinance lenders are better placed than other niche segments like mortgage loans and gold loans.
“NBFC-MFIs as a cohort continued to exhibit steady disbursement momentum and strong AUM growth. While there were flows between asset quality buckets, overall collections and asset quality remained healthy,” Motilal Oswal Financial Services said. Among microfinance lenders, the brokerage is positive on Fusion Microfinance.
Vehicle finance companies are expected to sustain strong domestic volume growth as most of the challenges like supply constraints and raw material inflation, have either receded or been resolved.
While the net interest margin of NBFCs are expected to compress by around 6-13 basis points quarter-on-quarter (q-o-q), the margins of vehicle financiers are seen bottoming out in July-September, say analysts. In fact, the net interest margin of Cholamandalam Investment and Finance may rise by around 10 basis points in the quarter under review.
Both gold loan companies, and affordable housing companies are expected to see a slight compression in margins due to a higher cost of funds. Nevertheless, the bottom-line of the NBFCs will be aided by a further improvement in asset quality.
An improvement in cash flows have contributed to relatively better collection efficiencies and should lead to benign credit costs across most of the NBFCs in July-September, say analysts. But, they remain watchful of delinquencies in unsecured portfolio in personal loans and micro, small and medium-sized enterprise (MSME) segments.
“Asset quality to remain stable for NBFCs and HFCs with stage 3 assets remain constant on QoQ basis which rose during FY22 due to RBI new regulations for NPA reporting,” IDBI Capital Markets and Securities said, adding that better collection efficiency and recovery in restructured assets should support the asset quality.