Mumbai: Strong disbursements and robust asset quality are likely to help non-banking finance companies (NBFCs) post a 15-17% increase in net profit in the fourth quarter ended March 2024. Higher cost of funds will, however, continue to pressure margins, analysts said.
The full impact of the Reserve Bank of India’s (RBI) increase in risk weights on consumer credit for banks and NBFCs, which was announced in November last year, is also likely to be felt this quarter impacting profitability and growth for small-ticket loans for personal consumption.
“Overall the sector looks poised for solid growth with asset quality remaining stable. The rising cost of funds and higher capital costs due to RBI measures will hit margins, especially among mid-sized NBFCs. Overall credit quality remains stable though there could be some deterioration in some microfinance portfolios,” said Shreepal Doshi, vice president at Equirus Capital.
Yes Securities expects margins of housing finance companies to be impacted due to rising cost of funds.
“Credit demand across products from varied borrower segments remained strong during Q4 and stable cash flows/incomes and non-perturbing individual/household leverage supported loan eligibility/underwriting. With structural asset quality trends remaining firm (except for pockets personal loan, cards and microfinance)…we expect earnings growth momentum to continue in microfinance companies, housing finance and vehicle financiers,” Yes Securities said in a report.
Vehicle finance and gold financiers are expected to post strong numbers due to economic growth.
Elara Capital said cyclical tailwinds, improving operational efficiency and continued benign credit quality environment to support earnings. It expects diversified and gold finance companies to remain in the limelight.
The RBI ban on IIFL Finance’s gold loans could also be an opportunity for other companies in the segment. Last month, RBI asked IIFL Finance to stop sanctioning and disbursing gold loans citing various supervsiory concerns including deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and breaches in loan-to-value ratio.
Motilal Oswal expects assets under management for vehicle financiers to grow 26% year-on-year, and microfinance companies to post a 29% growth while gold loan companies’ books to grow 19%.
“Higher risk weights on bank term loans to NBFCs and an increase in MCLR of banks resulted in rising cost of borrowing during the quarter. The continued rise in the cost of borrowing has prevented NIM (net interest margin) expansion, which was previously envisaged for fixed-rate lending like vehicle finance. At the sectoral level, we expect NIM to remain stable for vehicle financiers and anticipate NIM compression for housing finance and microfinance companies,” Motilal Oswal said in a results preview. The firm expects fixed-rate lenders such as vehicle financiers, microfinanciers and even small loans-against-property lenders to benefit from any interest rate cuts whenever they occur.
