Nomura expects diversified NBFCs to see steady growth in the first quarter of FY27, though higher borrowing costs could squeeze profit margins. Investors should watch how lenders manage these costs and monitor asset quality in vehicle and microfinance segments.
The Non-Banking Financial Company (NBFC) sector is heading into the first quarter of the 2027 financial year with expectations of steady expansion, according to a recent report by brokerage Nomura. While loan growth remains strong, the core challenge for many lenders this quarter is the elevated cost of borrowing, which may put pressure on net interest margins, or the difference between interest earned on loans and interest paid to banks.
Diversified Lenders and Margin Challenges
Most diversified NBFCs are expected to report growth in assets under management exceeding 20% compared to the same period last year. Despite this robust loan demand, the brokerage points out that rising funding costs remain a key concern. For most lenders in this category, credit costs are expected to stay within a stable range, though the impact of higher interest rates on overall profitability remains a focal point for shareholders.
Segment Performance in Vehicle and Microfinance
In the vehicle financing space, the quarter is typically slower, with potential challenges arising from fuel price volatility and supply chain issues. While some players like Mahindra & Mahindra Financial Services are projected to see a 21% increase in loan disbursements, the overall segment faces pressure from these external factors. Meanwhile, the microfinance sector appears to be showing signs of recovery, with companies like CreditAccess Grameen reporting a 16% rise in loan assets in recent updates. Affordable housing lenders, such as Aadhar Housing Finance, are also expected to maintain stable asset quality alongside a projected 20% growth in both loans and net profit.
Investor Monitorables for the Coming Quarter
As the industry navigates these conditions, the most important updates for investors will be management commentary on funding costs. Since global financial uncertainties have eased somewhat, the focus has shifted toward how individual companies manage their debt and protect their interest margins. Other factors that could influence performance for lenders with rural exposure include the progress of the monsoon and the availability of fertilizers, which directly impact the repayment capacity of rural borrowers. Additionally, asset quality trends in the SME and vehicle finance portfolios will be essential to monitor for any signs of stress. Given the recent rise in stock prices across the sector, investors may be particularly interested in how these companies balance growth with valuation expectations, as some lenders continue to trade at premium levels compared to their historical averages.