All thanks to GST reforms and an uptick in festive demand, non-banking finance companies (NBFCs) are expected to report healthy growth in the quarter ended December 2025 (Q3 FY26). “Higher demand for loans growth will show improved earnings growth,” said analysts.
“Improving disbursement traction, supported by strong festive demand, GST rate moderation across key products, rural recovery, and sustained mortgage demand, is likely to drive sequential acceleration in growth,” stated Emkay Global in its pre-earnings report.
For their NBFC universe, Motilal Oswal expects loan growth of 15% year-on-year (Y-o-Y) and a nearly 3% sequential rise in Q3 FY26. The brokerage sees NBFCs in vehicle financing, gold financing, and unsecured lending doing well.
What did ICRA Senior Vice President say?
AM Karthik, Senior Vice President, Co Group Head – Financial Sector Ratings, ICRA, said, “Retail-focused NBFCs are expected to maintain stable or improving performance in 2026, as stress in unsecured lending has eased and secured loan quality stays manageable. Lower funding costs will continue to support earnings, and sufficient capital for most players shall remain adequate for meeting growth.” He further added, “Infrastructure NBFCs should report steady results with controlled loan quality and earnings. Microfinance institutions will see positive growth and earnings, though still below pre-2024 levels.”
In the quarter ended December, large housing finance companies (HFCs) are expected to continue facing heightened competition, as banks have grown more aggressive over the past two quarters, offering home loans at significantly lower rates. As a result, large HFCs are expected to report contraction in NIM, driven by pressure on yields amid intensifying competition in the prime segment, analysts said.
“Disbursement momentum for both large HFCs and AHFCs (affordable housing finance companies) was relatively weaker (than earlier expectations), driven partly by the concentration of festive holidays during the quarter, which disrupted housing loan origination, and partly by intensifying competition from banks,” Motilal Oswal said in its report.
Funding Costs and Interest Margins
Analysts also highlighted that the cost of funds is trending downward for most NBFCs, thereby boosting profitability. “We reckon Q2FY26 (Jul-Sept) was the first full quarter to benefit from the 100 bps repo rate reduction between Feb–June 2025; hence, NBFCs may witness another 10–20 basis points reduction in cost of funds during Q3FY26E,” ICICI Securities said in its report.
The net interest margins (NIM) are expected to be mixed for the December quarter, varying across sub-segments. Reports said that large housing finance companies (HFCs) are likely to see margins contract due to heightened competitive intensity and lower prime lending rates. In contrast, affordable HFCs and vehicle financiers will see an NIM expansion, aided by segment-specific dynamics. Net interest income would broadly mirror AUM growth, with spread expansion for many players due to the decline in funding costs, analysts said.
The asset quality for the quarter ended December is expected to be stable, and the credit costs are likely to be contained or moderate on account of improving collection efficiency and cash flow.
“Concerns around stress in MSME, micro-LAP, and unsecured segments have been gradually easing, as business activity improves, aided by a good monsoon, strong festive demand, policy support from the government, and improved underwriting standards,” Emkay Global said in its report.
ICICI Securities, in its assessment of the microfinance segment, noted that collection efficiency had returned to normal levels and that flows to delinquency pools were declining. It also reported that the root cause of this microfinance crisis, which was overleveraging, also seems to have been gradually addressed, due to the implementation of MFIN guardrails, with exposure to over-leverage customers (more than three lenders) falling to nearly 9% by September 2025 from over 20% in September 2024.