Home >Markets >Mark To Market >Less cloud and more silver linings for NBFCs in Q2

Listed non-banking financial companies (NBFCs) may show an improvement in both growth and asset quality metrics for the September quarter, early updates of select lenders and forecasts by analysts suggest. In keeping with the trend, housing finance companies (HFCs) are likely to be the most resilient among NBFCs.

The second covid wave and the restrictions that followed had hit non-bank lenders in the June quarter. Most lenders reported an increase in indicators of stress and tepid growth numbers.

Year-on-year metrics need to be taken with a bag of salt given the large base effect. However, the sequential worsening of indicators was visible for most lenders. HDFC Ltd, the largest HFC, could chalk up just 8% assets under management growth during Q2, lower than the growth seen in the June quarter. Others such as LIC Housing Finance Ltd and Indiabulls Housing Finance Ltd reported lower growth metrics and a weakening asset quality.

A mixed bag
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A mixed bag

In the past three months, though, collection efficiencies have improved and this augurs well for asset quality. As such, home loans have shown the lowest delinquency rates among various loan categories. Disbursements have also picked up. Low interest rates on housing loans and festive season offers seem to have induced undecided buyers to finally take the plunge. Property registrations have been climbing faster and are expected to keep up the momentum.

Those catering to affordable housing may show faster growth. Analysts at Yes Securities Ltd expect affordable housing finance companies to witness a significant improvement in disbursements and some correction in stressed loan pool on the back of steady improvement in collections.

Housing finance companies enjoying low cost of funds such as HDFC and LIC Housing may grab more market share and show higher growth, analysts said. Housing finance companies have good company in NBFCs catering to consumer loans. The early update of Bajaj Finance indicates that growth in consumer loans has revived swiftly. Indians are willing to purchase products on equated monthly instalments (EMIs), whether electronics or cars.

Thus, non-bank lenders who have a large share of consumer loans may report decent growth for Q2.

“With faster pace of vaccination, unlocking has gathered pace and from July 2021 onwards the scenario seems to be improving rapidly. Collection efficiencies for most large lenders have reached 95% levels, as indicated in various management commentary," analysts at ICICI Direct Research wrote in a note.

Vehicle loans may also show improvement, though vehicle financiers may not have it easy on growth. A global chip shortage has hit automobile production, making car sales difficult and disbursements could thus be under pressure. On the other hand, stress is likely to come down and analysts expect the restructured loan pile to remain under check.

NBFCs operating in the microfinance space may perhaps find it most difficult to show a quick revival. Disbursements are likely to have picked up during Q2 because of the increase in rural demand. However, stressed assets may still remain elevated. Analysts pointed out that collection efficiencies have improved but are still around the 90% mark, indicating that stress persists.

The optimism around NBFCs is reflected in the increase in share prices over the past three months. The Nifty Financial Services index is up 20% year-to-date, matching the pace of the banking index.

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