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NBFCs Could Shine in Q4, but Credit Growth may Disappoint
The Economic Times  |  April 15, 2019

Our Bureau Mumbai

HOUSING-FINANCE COMPANIES, such as HDFC and LIC Hsg Fin, are expected to be the best performers however, vehicle financiers may reflect the slowdown in auto sales

 

Non-banking finance companies (NBFCs) are expected to report improved earnings for the January-March quarter, when their cost of funds from banks has eased from the highs of 2018. However, the overall liquidity situation continued to remain bleak, which may reflect in the credit growth and interest margins for several players.

 

Analysts expect the consolidated profit of companies in the sector to grow 10-15% year over year to around Rs 8,500-9,000 crore. That would also be better than the combined profit of Rs 8,100 crore reported in the October-December quarter, when the sector had come under severe stress following the developments at Infrastructure Leasing & Financial Services.

 

Defaults by the infrastructure lender in September saw NBFCs’ cost of funds from banks increasing by 0.5-0.75 percentage point, as market confidence in these entities dwindled. Despite banks’ lending rates easing over the course of the quarter by 0.3-0.4 percentage points, the costs still remain elevated compared to pre-September levels.

 

NBFCs’ asset under management are expected to grow 15% YoY, lower than December quarter YoY growth of 17.4%, to Rs 15.4 lakh crore, according to various analyst reports. Net interest margin, or the difference between lending and borrowing rates, is expected to decline by 0.1-0.3 percentage point from the previous quarter, the reports showed.

 

Retail NBFCs such as housing finance companies (HFCs) are expected to be the best performers for the quarter. A slowdown in auto sales may weigh heavy on vehicle finance NBFCs.

 

“HFCs with good parentage are likely to witness healthy retail growth despite strong competition from banks,” Motilal Oswal said in a report. “The quarter has been tough for vehicle financiers due to a slowdown in auto sales and impact of the high base of last year.” The brokerage expects HDFC and LIC Housing Finance to be the top-performing NBFCs of the quarter.

 

Gold finance NBFCs such as Muthoot Finance and Manappuram Finance have largely remained unaffected by the liquidity squeeze, thanks to the shorter maturity of their assets. “Also, with other forms of financing being adversely impacted in tight liquidity conditions, the outlook for gold loans looks more promising,” Edelweiss said.

 

The quarter saw an increasing number of NBFCs opting for alternative funding routes such as commercial paper and loan securitisations, as big mutual funds remained prudent on their debt exposure to NBFCs following the IL&FS crisis. Companies such as Shriram Finance, L&T Finance, Manappuram and Magma Fin Corp tapped retail investors for funding through public issues.

 

“The NCD (such as of non-convertible debenture) market has still not recovered fully due to mutual funds reducing their NBFC exposure significantly &hellip funds from the CP market have been available to all players, but cost of capital from this source has been very divergent across players,” said Motilal Oswal.