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Non-banking financial companies (NBFCs) and housing finance companies (HFCs) are likely to report another strong quarter, with robust disbursement momentum, healthy balance-sheet expansion and broadly stable-to-improving asset quality, according to Emkay Research.
According to the report, NBFCs and HFCs are also expected to see healthy expansion in their balance sheets during the quarter (July-September). At the same time, asset quality is expected to remain broadly stable or improve, indicating that credit quality is not expected to see significant deterioration in the quarter. It said, We expect another good quarter for NBFCs and HFCs, characterised by robust disbursement momentum, healthy balance-sheet expansion. However, the report also flagged some near-term pressure points for the sector, particularly on margins and fee income. The report identified the ongoing West Asia conflict, a rising yield curve and an expected around 50 basis points repo rate hike in the second half as factors that could create headwinds for margins. The report also pointed to insurance commission structures as another factor that could affect fee income. This creates a mixed picture for NBFCs and HFCs in the second quarter, with lending and balance-sheet growth remaining strong while some factors could put pressure on profitability. On the credit side, the report said the impact of localised drought declarations is expected to have been negligible during the second quarter to a large extent. It noted that these drought declarations occurred primarily towards the end of the quarter, limiting their operational impact during the period. The assessment suggests that the sector entered the second quarter with strong disbursement momentum and continued balance-sheet expansion, while asset quality remained broadly stable to improving. However, the research report expects companies to face some pressure from developments affecting margins and fee income. The ongoing West Asia conflict and changes in the yield curve are among the key factors highlighted by the report, while the expected approx. 50 basis points repo rate hike in 2H could also influence the margin trajectory. Overall, the report expects NBFCs and HFCs to deliver a strong second quarter in terms of disbursements and balance-sheet growth, with asset quality remaining stable, although margin and fee-income trends could remain key areas to watch. (ANI)
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