Bajaj Finance, Cholamandalam Investment and Finance and Shriram Finance may lead the growth due to strong consumer demand and as they continue to have access to funds.
Growth for gold loan companies will be slower but still better than the previous quarter as firming gold prices increased the risk appetite for these companies.
However, the impact of higher interest rates on NBFCs’ funding cost and the possible impact of rising rates on asset quality likely later in the year will have to be watched.
Brokerage Motilal Oswal said disbursements in vehicle financing are likely to remain healthy driven by strong underlying demand and sectoral tailwinds while affordable housing financiers will continue to exhibit strong disbursement momentum because of their ability to pass on higher interest rates to their borrowers.
“We expect vehicle financiers such as M&M Finance, Cholamandalam to continue to witness sustained margin compression. Owing to the aggressive stance of the banks, financiers would be unable to pass on rate hikes to consumers; and thereby, the yields would take slightly longer to offset the impact of higher borrowing costs, leading to margin compression,” Motilal Oswal said.
Demand momentum for the large housing finance companies however is likely to moderate, due to the impact of higher interest rates and lower eligibility of customers for large ticket loans.
Shreepal Doshi, senior equity analyst at Equirus Capital said NBFCs with businesses linked to home, vehicle and microfinance sectors will do better.
“Others like gold loan companies will do better sequentially but will still lag the growth of their home and vehicle counterparts. NBFCs like Aavas, Home First and Chola are expected to set the pace. Though they will face funding challenges which could impact their margins. Also, how the higher loan rates will impact asset quality for these companies will also have to be kept in mind,” Doshi said.
In a report last week, credit rating agency India Ratings and Research (Ind-Ra) said NBFCs would face increased funding challenges this fiscal which are likely to impact their growth aspirations.
“Funding is likely to become more expensive and restricted as lenders realign their pricing as well as funds allocation, factoring in their own increased cost of funds and constraints of their balance sheets,” Ind-Ra said.
Banks and capital markets together account for about 73% of funding sources for NBFCs. To manage pricing, NBFCs are likely to raise resources through securitisation and direct assignment, raising deposits and co-lending.
Overall, Ind-Ra believes NBFCs’ projected growth of 16% for FY24 may be affected on account of possibly limited availability of funds for the sector and that too at a higher cost, leading to margin compression for the sector during the year.
