IGI Logo

Jitteriness in personal loans and MFI because of recent developments

* In early FY24, NBFCs/HFCs benefitted from anticipated interest rate cuts, which could happen in the later part of the fiscal year. However, the broader consensus emerging today, from both the RBI MPC meetings and the FOMC meetings is that interest rate cuts are not on the horizon in the near term, despite the easing of persistent inflationary pressures. Adding to the challenge,

* the RBI RWA’s circular on Bank Term Loans to NBFCs has resulted in a rise (in varying quantum) in borrowing costs for the NBFCs, affecting their NIMs. As a result, NIM stabilization/expansion has been further delayed by one/two quarters.

* NBFCs, with a presence in personal loans (PL), have started calibrating their loan growth trajectory, expressing a clear intention to cut down on lower ticket personal loans and/or BNPL. In response to the RBI’s dissatisfaction with the lending yields of MFIs, many NBFC-MFIs have voluntarily cut their lending rates (in few instances by ~50bp) on new loans.

* We highlight the key trends shaping sub-sectors below and then present a curated tabular representation of important guidance/insights given by each of the companies in our NBFC coverage universe.

Vehicle Finance

* Vehicle Financiers (except MMFS) reported largely stable margins in 3QFY24. Because of the RBI RWA circular, CoB went up during the quarter. However, CoB (both weighted average and incremental) are now expected to stabilize and/or peak out at current levels. Lenders also took marginal interest rate hikes on their incremental lending. This should support NIM trajectory, going ahead.

 * While no vehicle financier believes that the auto (or CV) cycle has peaked out, there is selective acknowledgement that the auto volume growth could moderate in FY25. With new CVs, the Bus segment is exhibiting good demand.

* In the PV segment, the inventory levels at dealerships have rebounded to a twomonth supply, with an anticipated volume growth of <10% in FY25. However, preference for SUVs (over entry-level vehicles) could continue to support healthy disbursement growth.

Housing Finance

* Housing Financiers continued to see NIM compression because of both a decline in yields as well as a rise in borrowing costs. This NIM compression is expected to sustain for one-two more quarters and subsequently stabilize.

* Competitive pressure between banks and large HFCs operating predominantly in the prime segment continues to remain high. Large HFCs saw compression of yields because of incremental lending at lower interest rates in select geographies and book retention strategies (to stem BT-OUTs).

* Demand in apartment-led urban affordable housing particularly in ticket sizes of INR1.5-3.0m remained muted. Demand in this segment is expected to see an uptick from a potential housing incentive scheme announced in the Interim Budget

* There is uncertainty regarding the potential increase in risk weights on the LAP product. If there is indeed an increase in risk-weights on LAP, CRAR of the affordable HFCs could be adversely impacted by ~2-3pp.

* Asset quality continues to remain benign and no one seems perturbed by delinquencies in the affordable housing segment. Credit costs expected to remain benign.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412