Diversified non-banking financial companies (NBFCs) are likely to witness upward revisions to their FY27 growth and return-on-assets (RoA) guidance following a strong start to the financial year, with healthy loan growth, resilient asset quality and normalising credit costs expected to drive profitability, according to a report by Equirus Securities.
The brokerage expects its coverage universe of diversified NBFCs to record 24.7 per cent growth in net interest income (NII), 29.6 per cent growth in pre-provision operating profit (PPoP) and 37 per cent growth in profit after tax (PAT) during FY27. The estimates are supported by projected assets under management (AUM) growth of around 19.4 per cent.
According to the report, the first quarter of FY27 highlighted the broad-based strength of diversified NBFCs despite an uncertain geopolitical environment. Lenders continued to expand their loan books while maintaining underwriting discipline, and asset quality remained largely resilient even during what is typically a seasonally weaker quarter.
Aggregate assets under management (AAUM) across the sector increased by around 19 per cent year-on-year and 4.6 per cent sequentially in the quarter. The growth reflected continued momentum across multiple retail lending segments, with lenders increasingly focusing on higher-yielding businesses while remaining cautious about credit quality.
Growth was broad-based across personal loans, consumer finance, micro-loans against property (micro-LAP), housing finance, gold finance, commercial vehicles, tractors and rural mobility. The diversified nature of these portfolios is expected to provide lenders with multiple avenues for growth while reducing their dependence on any single lending segment.
Gold finance emerged as a particularly important growth area for several lenders during the quarter. Vehicle financing also remained supportive, helped by established franchises in commercial vehicles and rural mobility. According to Equirus, tighter underwriting standards and an improvement in customer leverage levels during the fourth quarters of FY25 and FY26 are beginning to benefit diversified lenders.
However, margins remained mixed during the quarter. Higher funding costs and excess liquidity on balance sheets partly offset the benefits arising from improved lending yields. Going forward, the pace at which funding costs transmit through the system, along with changes in portfolio mix, will remain important factors influencing margins.
Equirus expects margins across the sector to normalise during the second half of FY27. The brokerage believes that margin improvement, combined with operating leverage and normalising credit costs, could provide further support to RoA expansion during the year.
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Asset quality also remained broadly stable. While GS2+GS3 levels recorded a seasonal increase at some lenders, Stage-3 trends improved across most of the sector. Credit costs were largely stable, supported by tighter underwriting standards, better collection efficiencies and the seasoning of loan portfolios.
The brokerage believes these factors could create room for diversified NBFCs to outperform initial credit-cost expectations and deliver stronger profitability through FY27.
At the same time, several external factors will remain important risks for the sector. The progress of the monsoon, rural cash flows, stress within the micro, small and medium enterprises (MSME) segment, geopolitical developments and the trajectory of interest rates will need to be closely monitored.
Despite these risks, Equirus said the strong performance recorded in the first quarter provides an encouraging starting point for FY27. Continued loan growth, resilient asset quality, operating leverage and a gradual normalisation in credit costs could allow diversified NBFCs to sustain healthy earnings growth and improve returns during the financial year.
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