NBFCs' growth pace to stay strong on loan demand, benign costs
finance companies (NBFCs) are expected to continue their growth momentum riding on strong demand for loans even as credit costs are likely to remain benign in the first quarter ending June 2023. Analysts expect profit growth for NBFCs in the 15% to 25% range with loan books likely to increase by about 10%.
In a note, ICICI Securities said earnings growth momentum for housing finance (HFC) and microfinance companies is likely to be better sequentially, helped by an upward repricing in asset portfolio after a 25 to 50 basis points hike in lending rates between March and April. One basis point is 0.01 percentage point.
The repricing of loans will help NBFCs absorb pressure from higher cost of funds and help maintain or improve margins compared to the quarter ended March, ICICI Securities said. «While disbursements on a sequential basis may remain muted due to seasonality, assets under management growth is likely to remain at 9% year-on-year for our HFC coverage.
On the asset quality front, we expect incremental credit cost to remain lower than FY23 level (of 1-2%) and headline asset quality metrics to continue to trend downwards,» ICICI Securities said. The brokerage expects more than 30% growth in net interest income and about a 30% increase in profit after tax for HFCs under its coverage.
However, some analysts expect margins for HFCs to be under pressure because they may not be able to pass on the full increase in the cost of funds to customers due to competition. «Comparatively microfinance has more leeway to pass on the higher cost of funds,» said Shreepal Doshi, analyst at Equirus Securities.
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