India’s NBFC Sector Shows Resilience with Steady Growth and Stable Asset Quality
India’s non-banking financial companies (NBFCs) are maintaining a robust growth trajectory, demonstrating strong credit demand despite an increasingly complex geopolitical landscape. According to a comprehensive market analysis by brokerage firm 360 ONE Capital, the sector remains on track to meet its long-term financial targets, with management teams largely upholding their growth guidance for FY27.
The recent report, which highlights the sector’s performance, notes that while the industry is performing well, investors should keep a close watch on potential pressure points regarding lending yields and profit margins, particularly within the gold and affordable housing finance segments.
Q1 FY27 Performance Highlights
NBFCs under the coverage of 360 ONE Capital—excluding power financiers—delivered an impressive performance in the first quarter of FY27. Financial metrics for the period show strong momentum:
- Net Interest Income (NII): Grew by 23.9% year-on-year.
- Operating Profit: Increased by 24.9% year-on-year.
- Profit After Tax (PAT): Surged by 36.9% compared to the previous year.
- Assets Under Management (AUM): Posted a healthy 19% year-on-year growth, aligning with market expectations.
Significantly, the report suggests that the recent tensions in West Asia have had a limited impact on the sector. Furthermore, early delinquency indicators show that asset quality remains stable, with no visible stress stemming from geopolitical uncertainties or environmental factors such as El Niño.
Divergent Trends Across Segments
While the broader sector is thriving, performance varies across specific lending categories:
- Vehicle Finance: This segment saw an acceleration in growth, with AUM rising by 16.8% YoY. This uptick is attributed to strong disbursement momentum and a healthy demand environment that has remained resilient despite erratic weather patterns.
- Housing Finance: Growth in this sector was more muted, recording a 5.6% YoY increase. This underperformance is partly linked to elevated balance transfers, notably at LIC Housing Finance, which prompted the firm to downwardly revise its FY27 loan growth guidance. However, other prime housing finance companies have maintained their original growth outlooks.
- Gold Finance: Growth moderated to 47.1% YoY as gold prices stabilized and new regulatory guidelines were implemented. Analysts are now closely monitoring competitive pressure on yields within this space.
- Power Finance: This remains the weakest link in the sector, with the combined loan book growing by a marginal 2.3% YoY and showing a slight sequential decline.
The Outlook Ahead
As the industry moves forward, the primary focus for market participants will be the sustainability of net interest margins (NIMs). The 360 ONE Capital report emphasizes that while NBFCs stay on growth track as asset quality remains stable, management will need to navigate yield pressures effectively.
The compression of margins—most notably the 300 basis point contraction recorded by Muthoot Finance—serves as a reminder that competition and regulatory shifts remain key factors that could influence the sector’s profitability in the coming quarters.
