NBFC Growth Outlook Steady; Margin Pressures, Asset Quality in Focus
NBFCs are expected to maintain steady growth with healthy credit demand, though margin pressures and asset quality remain key monitorables.
India's non-banking financial companies (NBFCs) are expected to sustain their growth momentum in the near to medium term, with management teams retaining their FY27 and medium-term guidance. Credit demand remains healthy despite geopolitical uncertainties, according to brokerage firm 360 ONE Capital.
The brokerage's coverage universe, excluding power financiers, posted strong first-quarter results, with net interest income, operating profit, and profit after tax growing 23.9 per cent, 24.9 per cent, and 36.9 per cent year-on-year, respectively. Aggregate assets under management (AUM) grew around 19 per cent year-on-year, broadly in line with expectations.
Management commentary indicates that credit demand has remained resilient, with limited impact so far from the West Asia crisis. Early delinquency indicators suggest no discernible asset quality stress from geopolitical factors or El Nino, while stressed assets remained broadly stable across most lending segments.
Among vehicle financiers, AUM growth accelerated to 16.8 per cent year-on-year, supported by strong disbursement momentum. Demand remains healthy, with limited impact from monsoons and geopolitical uncertainties.
Housing finance companies (HFCs), however, recorded slower-than-expected AUM growth of 5.6 per cent year-on-year, partly due to elevated balance transfers out at LIC Housing Finance. The company subsequently lowered its FY27 loan growth guidance to 8-10 per cent from 10-12 per cent earlier, while other prime HFCs maintained their growth outlook.
Gold financiers saw growth moderate to 47.1 per cent year-on-year, following stabilisation in gold prices and implementation of new gold loan guidelines. The brokerage flagged competitive pressure on yields as a key concern going forward.
Power financiers remained the weakest segment, with their combined loan book growing only 2.3 per cent year-on-year and declining 0.3 per cent sequentially.
Margins were broadly in line with expectations, although Muthoot Finance saw sharper-than-expected compression of around 300 basis points. Going ahead, sustainability of net interest margins will remain a key monitorable amid yield pressures, particularly in gold and affordable housing finance.