Mumbai: Non-banking finance companies (NBFCs) are likely to report 20-30% growth in net profit in the second quarter ended September 2023 driven by strong loan disbursements, even though margins could be under pressure reflecting a rise in cost of funds.
Emkay Global Financial Services expects retail credit to continue to grow due to strong consumption demand and expansion into the rural market.
“We expect Q2 to be another good quarter for NBFCs, with disbursement and AUM growth remaining buoyant (adjusting for seasonality and the delayed festive season) in focused segments, and the collection trend and asset quality staying largely stable sequentially. A few players may see slight compression in net interest margin (NIM) on account of a marginal rise in funding cost and some asset mix change-led contraction in asset yields,” Emkay said in a report.
Analysts expect consumer-facing sectors like microfinance, consumer durable and vehicle loans to lead growth for NBFCs, with affordable housing and gold-loan companies lagging behind their peers due to factors like increased competition and a fall in gold price.
“Though growth for affordable housing companies will remain healthy, larger companies may see some moderation as the trend is that growth slows once loan books cross ₹15,000 crore. The drop in price of gold during the quarter will be reflected in the slower growth for gold-loan companies,” said Shreepal Doshi, analyst at Equirus Securities.
Motilal Oswal expects NIMs of gold-loan companies Manappuram Finance and Muthoot Finance to decline between 5 and 10 basis points due to heightened competition. One basis point is 0.01 percentage point.
“Diversified lenders such as Bajaj Finance, Poonawalla Fincorp, L&T Finance, and non-vehicle segments of Shriram Finance with presence in MSME, two-wheelers, microfinance, consumer finance, pre-owned cars and personal loans are likely to see healthy disbursement momentum, minor to no impact on NIM, and improvement in asset quality,” Motilal Oswal said in a note.
The brokerage has listed Cholamandalam Investment & Finance Co, Fusion Microfinance and Mahindra & Mahindra Financial Services as top picks from the sector.
Emkay expects margins for Piramal Enterprises and Poonawalla Fincorp to expand on the back of improved cost of funding and lower borrowing.
“Piramal and L&T Finance should continue their accelerated ‘retail’isation journey by running down the wholesale book and delivering stronger retail growth…the key monitorable would be management commentary on growth and asset-quality outlook against a backdrop of capital raise by some NBFCs and weaker monsoons, along with concerns rising on increase in stress in retail unsecured lending,” Emkay said.
Analysts do not expect any surprises on asset quality though there are worries of stress building up in unsecured loans. Last week, after its monetary policy review, the Reserve Bank of India warned banks and NBFCs to strengthen their risk management systems, watch trends and take necessary measures to prevent NPAs.
Deputy governor J Swaminathan, who is in charge of the supervision department at the RBI, said the central bank has been monitoring unsecured retail loans which have grown 33% on an average for the last couple of years, more than double the 12-14% growth for the rest of the banking sector.
