The NBFC segment is expected to experience modest growth in the near future despite quarter and quarter growth acceleration, the YoY AUM (Assets Under Management) growth will continue to moderate and settle at lower growth number by FY2025 when compared to FY 2024.
However by the middle of 2025 there could be return of growth and many NBFCs will witness sustained growth as the months pass by. As a result profitability of the NBFCs segment in Financial Year 2026 is expected to be better and will be aided by stabilising credit costs and the beginning of a possible rate-cut cycle.
As per a recent report by Emkay Global the last quarter is expected to be a modest quarter for the NBFC segment. The growth was aided by good performances in the SME, mortgage, and housing loan segments.
Also read
Going forward the report points out that there could be a modest improvement in vehicle financing, although growth in new vehicles and unsecured loans is expected to remain softer in comparison. On the margin front, companies under the NBFCs are expected to maintain stability, as the anticipation of a rate cut shifts to the next quarter.
The operating expenses for most players are expected to remain sticky, reflecting ongoing investments in technology, manpower, and infrastructure, which continue to be key strategic priorities for driving long-term growth and efficiency.
A minor recovery in the Q3 is expected for vehicle financiers, along with the easing pressure from the MFI Micro Finance Institution segment, is expected to provide a much-needed boost to the sector.
Additionally, better-than-expected kharif harvest is likely to improve rural cash flows, further supporting the outlook for these segments. As a result, it is expected that credit costs will stabilise or even improve, while asset quality would remain resilient. Collectively, these factors position the sector to perform better in Q4 FY25, with a more favourable growth trajectory driven by these easing pressures.
It is expected that there could be a positive growth outlook and asset quality holding up well across most segments by the middle of 2025 and NBFCs may deliver sustained earnings growth.
As valuations for NBFC shares turn favourable, concerns regarding growth, driven by the slowdown in Commercial Vehicle Sales (CV), MFI stress spilling into other segments, and elevated credit costs, now appear to be easing, creating a more supportive environment for the sector.
