IGI Logo

Asset quality and demand trends robust; NIM trends mixed

* Demand trends remain strong: We expect ~11% YoY growth in AUM for our coverage HFCs, including both affordable and large HFCs. Vehicle financers are projected to report ~17% YoY AUM growth. Gold lenders (including non-gold products) are likely to record ~47% YoY growth. NBFC-MFIs are estimated to post AUM growth of 11% YoY, while diversified lenders are expected to deliver ~26% YoY growth in AUM. For our NBFC coverage universe, we estimate loan growth of ~16.0% YoY/3.8% QoQ as of Jun’26.

* A strong start to FY27, supported by healthy growth and broadly stable asset quality: We expect NBFCs to deliver a healthy operating performance in 1QFY27, driven by strong loan growth and stable asset quality. Growth momentum remained broad-based across most lending segments (excluding power finance), supported by healthy demand in housing finance, vehicle finance, microfinance, diversified retail lending, and unsecured retail segment. However, lenders remained selective in used CV and unsecured MSME lending amid elevated crude oil prices and geopolitical uncertainty arising from the West Asia conflict. Gold loan growth remained healthy, although it moderated from the strong momentum seen in the last two quarters. Meanwhile, the MFI segment witnessed an improvement in disbursement trends, reflecting a strong recovery in business momentum.

* Incremental CoF higher; NIM under modest pressure: Debt market interest rates remained elevated through most of 1QFY27, resulting in a higher incremental cost of funds (CoF) for NBFCs, particularly those with greater reliance on market borrowings. While bond yields softened following the USIran ceasefire, the moderation was largely confined to the final few weeks of the quarter. Consequently, we expect a modest impact on NIMs, especially for lenders with a relatively higher share of bond market funding.

* Asset quality broadly stable; no visible impact from West Asia conflict: Asset quality trends remained broadly stable for most lending segments even in a seasonally weaker first quarter. The marginal increase in delinquencies observed in housing finance and vehicle finance was largely seasonal and remained within expected levels. Importantly, high crude oil prices and the West Asia conflict did not result in any meaningful deterioration in portfolio performance during the quarter. In the MFI segment, asset quality continued to improve, supported by a sustained decline in GNPA levels and well-contained forward flows.

* Earnings to remain healthy; diversified lenders continue to be preferred: We estimate ~20%/23% YoY growth in NII/PPoP in 1QFY27 for our NBFC coverage universe and ~26% YoY growth in PAT. Excluding NBFC-MFIs, we estimate ~22% YoY growth in PAT for our coverage universe. Our preference is for diversified lenders and our top picks in the sector are SHFL, LTF, ABCL and PNBHF.

HFCs: Heathy disbursement and AUM growth; NIM pressure for large HFCs

* Disbursement momentum remained healthy for both large HFCs and affordable HFCs during the quarter. However, large HFCs continued to face heightened competitive intensity from banks, although BT-outs declined as lending rates have stabilized. Margins for large HFCs are likely to remain under pressure owing to the transmission of lower PLR rates and a marginal increase in the incremental CoF. In contrast, affordable HFCs are expected to report stable to marginally lower margins during the quarter.

* Asset quality witnessed marginal seasonal weakness across both large HFCs and AHFCs; however, credit costs are expected to remain benign during the quarter.

* For LICHF, we expect credit costs at ~17bp (vs. ~10bp in 4QFY26). Margins are expected to decline ~10bp QoQ. We expect LICHF to report 4% YoY growth in loans. BHFL reported AUM growth of 24% YoY. We expect margins for BHFL to decline ~10bp QOQ. ? We forecast HomeFirst to report ~29% YoY growth in disbursements, leading to AUM growth of ~25% YoY. Asset quality is expected to remain broadly stable for both HomeFirst and Aavas. Aavas is expected to report disbursement and AUM growth of 44% and 16% YoY, respectively.

* We estimate PNBHF to deliver 15.5% YoY growth in total loan book as of Jun’26. For PNBHF, we expect NIM to contract ~10bp QoQ. Asset quality improvement and recoveries from the written-off pool in both Retail/Corporate could again result in provision write-backs (like in the prior quarters).

* For Five Star, loan growth and disbursements are expected to pick up. We expect disbursements to grow 14% YoY and 21% QoQ, translating into ~11% YoY growth in AUM. We expect credit costs to remain broadly stable at ~1.85%.

MFIs: Strong business momentum; fresh PAR accretion moderates

* Business momentum across MFI lenders continues to strengthen, with disbursement growth remaining stronger than anticipated, resulting in healthy sequential AUM growth. We expect QoQ AUM growth of ~4.0%/8.7% for Fusion/Spandana while CREDAG reported 2.5% QoQ AUM growth in 1QFY27.

* Asset quality in the segment continued to improve during the quarter, aided by a decline in PAR levels and moderation in fresh flow forwards. Fresh PAR accretion remained in the range of 15-20bp for most lenders, indicating strong collection efficiency. Further, there was no seasonal deterioration or any adverse impact from the West Asia conflict on asset quality during the quarter.

* We expect sequential decline in credit costs for MFI companies. We estimate annualized credit costs of ~3.0%/2.4%/-0.4% for CREDAG/Fusion/Spandana in this quarter.

Power financiers: Muted loan growth continues; asset quality to improve further driven by stressed asset resolutions

* Disbursements and AUM growth among power financiers were muted during the quarter. REC’s disbursements are expected to decline 9% YoY, leading to muted AUM growth of 2% YoY. Asset quality is expected to improve, driven by the resolution of stressed assets (i.e. Hiranmaye) during the quarter.

* For PFC, we expect disbursements to grow 10% YoY, leading to loan book growth of ~7% YoY.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412