BUSINESS
Non-banking financial companies (NBFCs) are expected to witness a relatively-slower growth in their net profits for the July-September period because of an uptick in cost of borrowings, according to research reports. According to a report by ICICI Securities , the net profit of NBFCs is expected to grow at a moderate rate of 11% year-on-year while registering a decline of 2% on a quarterly basis, as credit costs are anticipated to rise 38% YoY and 17% QoQ. “In a nutshell, rising cost of funds, competition and interest reversals are likely to result in margin contraction for NBFCs during Q2FY25,” said the report. While NBFCs are benefitting from a steady credit demand, particularly in housing, infrastructure and gold financing, there are early signs of a spike in credit cost. Credit costs are projected to rise by 21 basis points YoY to 1.6%, signalling potential asset quality risks, especially in the microfinance and unsecured loan segments, according to a report by Elara Securities. As banks’ borrowing to NBFCs with ratings of below ‘AA’ has become dearer, non-bank lenders have leaned towards alternative sources – reliance on commercial papers, foreign currency borrowings and securitisation has significantly gone up – now accounting for 16% of overall borrowings as of the end of the first quarter of the current fiscal, according to Crisil . Although net interest margins (NIMs) are expected to improve by 12 bps QoQ, funding cost pressures are likely to affect margins in upcoming quarters. “With rates transmission happening through asset repricing, NIM should hold. Q2FY25E aggregate NIM would witness an uptick of 12 bps QoQ and 6 bps YoY. While asset repricing is largely behind us, funding cost strain may reflect in the upcoming quarters. Effective liability management, impending debt maturity and liquidity chest may determine the margin trajectory for NBFC,” Elara Securities report said. Research reports highlight that although non-performing assets remain under control, with a modest decline of 6 bps QoQ, credit costs are beginning to climb. Analysts are anticipating a marginal moderation in assets under management growth, primarily because of the slowdown in disbursements following heavy rainfall in a few geographies and a slightly-slower growth in unsecured segments. According to the Systematix Research report, the AUM growth is expected to remain in the range of 19-34% across product categories. NBFCs may face a slowing momentum in the near term as the sector grapples with rising funding costs and potential impacts of upcoming elections. Multiple research reports forecast that NBFCs will post an 18% Y-o-Y growth in businesses in Q2, but also warn that commercial vehicles and consumer financiers may see tailwinds only in the second half of FY25. To sum it up, increased regulatory scrutinies, tighter funding conditions and liquidity challenges are seen as key factors impacting the sector’s performance. None
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