Non-banking financial companies (NBFCs) are likely to witness a slowdown in disbursements during the April-June period due to prolonged electoral activity and extreme heatwave-linked disruptions. However, the long-term outlook on the sector remains positive, say analysts.
“Q1 being a seasonally-weak quarter and factoring in some uncertainties around the monsoon and slowdown in CV sales, we expect the growth in disbursements to be muted across the NBFC pack,” brokerage firm Emkay Global Financial Services said in a report.
Nomura, too, is expecting a moderation in disbursement growth in the first quarter of the current financial year owing to a slowdown in unsecured loans amid increased regulatory oversight. Further, a slowdown in key segments like automobile and microfinance, and elevated competition from banks in secured segments like mortgage loans will weigh on the overall loan growth.
SG Finserve will kick start the results season for NBFCs on July 10.
Among marquee lenders, disbursements of Mahindra and Mahindra Financial Services rose 5% year-on-year (YoY) to Rs 12,730 crore in April-June, provisional data from the company showed. Bajaj Finance booked nearly 11 million new loans in April-June, up 10% YoY.
The cost of borrowing for NBFCs remained elevated in the reporting quarter as banks have hiked their marginal cost of funds-based lending rates (MCLRs). This prevented an expansion in the net interest margin for NBFCs, say analysts. However, fixed-rate lenders like vehicle finance companies, which increased lending rates in the previous quarter, have started seeing some improvement in their net interest margins.
“At the sectoral level, we expect the NIM to remain flat for vehicle financiers and anticipate NIM compression for HFCs (except PNBHF) and MFIs,” Motilal Oswal Financial Services said in a report. The brokerage said April is typically a weak month for mortgage financiers.
On the other hand, gold loan companies and diversified financiers are expected to deliver a stronger loan growth, say analysts.
“While overall industry loan growth is expected to be below par; few large NBFCs may report good growth numbers. We expect affordable housing finance companies and large retail NBFCs to outperform the peers,” Ajit Kabi, equity research analyst (institutional, banks and NBFCs), LKP Securities.
Rural-focused NBFCs like microfinance companies may see an uptick in credit costs due to announcement of the loan waiver scheme in some states. However, analysts are confident that the asset quality for most players would remain stable, led by strong customer selection and tightening of the credit underwriting policy.
“With interest rate-cut prospects getting pushed to Q4FY25, the possibility of an improvement in NIM may also get deferred. But, a stable asset quality-led benign credit cost should lead to profitable growth,” Emkay Global said.
Overall, analysts are positive on Shriram Finance, Bajaj Finance, L&T Finance, U GRO Capital and PNB Housing Finance.