Non-banking financial companies (NBFCs) are expected to report a healthy start to FY27, supported by robust loan growth and stable asset quality in the April-June quarter.
“Healthy credit demand continues to drive sector-wide growth, with vehicle financiers seeing Q1 volumes largely intact despite typical seasonal softness. Recent business updates have affirmed this trend, highlighting strong disbursements and robust AUM growth,” Emkay Global said in a report. It added that operating expenses are expected to remain broadly stable, reflecting continued investments in technology and infrastructure.
Bajaj Finance’s assets under management (AUM) rose 24% year-on-year to about ₹5.47 lakh crore as of June 30, according to the company’s business update. L&T Finance’s retail disbursements increased 36% to ₹23,800 crore, while its retail loan book is estimated to have grown 28% to ₹1.27 lakh crore.
Mahindra & Mahindra Financial Services reported a 21% year-on-year rise in disbursements to ₹15,560 crore during the June quarter, while its AUM grew around 12 % to ₹1.37 lakh crore.
According to data released by the Reserve Bank of India on Tuesday, credit extended by NBFCs rose 14.2% year-on-year to ₹58.66 lakh crore as of May.
Segment Growth
Analysts expect broad-based growth across segments in the first quarter, with affordable housing finance, microfinance and commercial vehicle lending showing signs of improvement, supporting overall loan growth.
Brokerages expect AUM growth of more than 20% for most diversified NBFCs. “We expect all diversified lenders under our coverage to report more than 20 per cent year-on-year growth in AUM in Q1,” Nomura said.
However, views on margins remain divided.
Divided Views on NIMs
Nomura expects net interest margins (NIMs) to come under sequential pressure as borrowing costs on bank credit lines remained elevated during the quarter. “Diversified lenders tend to have floating-rate asset books, allowing them to pass on some of the pressure. Still, we expect margin compression for most players,” it said.
Kotak Institutional Equities, however, expects NIMs to expand. “Borrowing costs have likely declined by 22-90 basis points year-on-year for most players over the last four quarters. The benefit of lower borrowing costs is expected to drive NIM expansion in the first quarter,” the brokerage said. It cautioned, however, that any increase in banks’ MCLR could weigh on margins going forward.
Analysts also expect asset quality to remain stable in the June quarter, supported by tighter underwriting standards and better collection efficiency. However, credit costs for rural-focused lenders could rise in the second quarter if the monsoon remains weak and food inflation concerns persist.
“Management commentary on borrowing costs from banks and bond issuances will be critical to watch. Trends in asset quality in the vehicle finance and select SME segments also remain key monitorables. While it is still early, monsoon progress and fertiliser availability will be important factors for rural-focused lenders,” Nomura said.