Non-banking financial companies (NBFCs) are expected to sustain the growth in their assets under management (AUM) in the January-March quarter, aided by strong disbursements.
However, net interest margin (NIM) will remain a key monitorable in the March quarter too as the borrowing cost has continued to rise.
Analysts note that the Reserve Bank of India’s (RBI’s) move to increase the risk weights on bank loans to NBFCs and a rise in the marginal cost of funds-based lending rate of banks have led to the rise in borrowing cost for NBFCs.
“The continued rise in the cost of borrowings has prevented NIM expansion, which was previously envisaged for fixed-rate lending like vehicle finance,” brokerage firm Motilal Oswal Financial Services said in a pre-earnings report.
The brokerage expects margins to remain stable for vehicle financiers, even as housing finance companies will witness a compression.
Jio Financial will on April 19 kick-start the January-March earnings season.
According to provisional data, the business assets of Mahindra and Mahindra Financial Services rose 24% year-on-year (y-o-y) to Rs 1 trillion as on March 31, aided by a growth in disbursements.
Similarly, the AUM of Cholamandalam Investment and Finance rose 35% y-o-y to Rs 1.5 trillion as on March 31.
“We expect NBFCs to deliver another quarter of good operational and financial performance in January-March, reflected in steady growth in AUM and positive asset quality trends,” Emkay Global Financial Services said in a report. The brokerage added that an improvement in the credit cost will drive up profitability in the March quarter.
Specifically, analysts expect affordable housing companies, vehicle financiers and gold finance companies to witness strong disbursements. This growth in AUM and stable asset quality will aid the bottom line of the NBFC segment.
“We believe that fixed-rate lenders such as vehicle financiers, micro financiers and even micro-LAP lenders will benefit from any interest rate cuts whenever they occur,” Motilal Oswal Financial Services said.
PNB Housing Finance, Fusion Microfinance, Cholamandalam Investment Finance Company, Shriram Finance and Aavas Financiers are among analysts’ top picks.
On the other hand, analysts feel that lender-specific sanctions on certain products by the RBI may warrant a re-evaluation of processes and policies, and this may impact growth projections.
In the March quarter, IIFL Finance was barred from disbursing fresh gold loans citing concerns, including serious deviations in assaying and certifying the purity of gold. Subsequently, JM Financial Products was banned from extending loans against shares and bonds after an inspection revealed serious deficiencies in financing IPOs and bond offerings.
Additionally, the impact of prolonged general elections on many segments, uncertainty around monsoons will be watched.
“We remain watchful on the commentary on growth after the increase in risk weights on unsecured lending and bank lending to NBFCs, and slowdown in CV sales during the pre-election period,” Centrum Broking said in a report.