Non-banking financial companies reported a moderation in profit growth for the quarter ended March, even as asset quality showed signs of improvement, said brokerage firm Jefferies in a recent note. While AUM growth softened across most segments, net interest margin trends were mixed, with many firms guiding for better NIMs in fiscal 2026.
Jefferies expects profit growth to stabilise and borrower stress to ease in fiscal 2026, with some NBFCs potentially seeing NIM surprises due to more rate cuts. Bajaj Finance, Cholamandalam Investment, and Shriram Finance remain the brokerage's top picks.
Aggregate profit for NBFCs and HFCs grew 10% year-on-year in the quarter under review, down from 15% in the previous quarter. Auto NBFCs saw AUM growth moderate to 10% from 25%.
Strong profit growth came from Muthoot Finance at 43%, Aditya Birla Capital at 20% to 30%, and some select housing finance companies such as LIC Housing Finance, Home First Finance Co., and Aptus Value Housing Finance, said Jefferies.
On the other hand, exposure to infrastructure leasing and financial services and microfinance institutions hurt players like IIFL Finance and Manappuram Finance, noted the firm.
AUM growth for NBFCs moderated to 19% on an annual basis from 21% in Q3, while disbursement growth slowed to 13% from 20%. Auto loans and vehicle disbursements were mixed, with housing finance companies seeing pushback due to regional factors such as elections in Karnataka and Telangana. Jefferies also noted steady disbursements in gold loan players like Muthoot and IIFL.
Most NBFCs expect NIMs to stabilise or improve in fiscal 2026, aided by potential rate cuts. Bajaj Finance guided for a 10 basis points expansion, and SBI Cards indicated a recovery in margins.
Gross non-performing assets fell for most lenders, especially in MFIs. Collections remained strong and rollback rates improved. Housing finance companies also saw fewer asset quality surprises. Among NBFCs, only IIFL and Manappuram Finance reported a spike in stress due to legacy exposure, said the brokerage.
Overall, Jefferies remains constructive on NBFCs, especially Bajaj Finance, IIFL, and LIC Housing Finance, expecting the second half of the fiscal to bring better margins and easing stress.
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