NBFCs set for 20% AUM growth in Q2FY27, rising funding costs may pressure margins: JM Financial

According to the report, Indias macroeconomic environment has become less favourable since Q1FY27, with rising borrowing costs emerging as a key concern for earnings in the second half of FY27, replacing demand as the major factor.

At the same time, the 10-year government securities (G-sec) yield surged by 2540 basis points since August 2026, while yields on NBFCs' three- and five-year AAA-rated bonds rose by 5060 basis points since June 2026.

This points to mounting pressure on funding costs, which we expect to flow through mainly in FY28, it said, adding, IRDAIs draft regulation impacting commission income could also weigh on FY28 profitability.

The report highlighted that strong retail demand, a gradual recovery in loans against property (LAP) and a growing share of gold loans are expected to support diversified non-banking financial companies (NBFCs) and lenders focused on micro, small and medium enterprises (MSMEs) and gold loans.

We expect aggregate AUM growth of ~20% YoY (19%/17% in Q1FY27/Q2FY26) with RoA/RoE of ~3.0%/~15.1%, it said.

At the same time, loan disbursements are expected to remain healthy for vehicle financiers (VFs), although some lenders could witness a marginal increase in credit costs, it said. We expect VFs' AUM growth to remain resilient (~18% YoY) as disbursement momentum remains healthy at 22% YoY/4% QoQ, it added.

Housing finance companies (HFCs) and affordable housing finance companies (AHFCs) are expected to report around 13 per cent year-on-year growth in assets under management (AUM), supported by a 24 per cent rise in loan disbursements.

Meanwhile, microfinance institutions (MFIs) are likely to witness a faster recovery in loan growth, driven by higher-value lending and an improvement in their core microfinance business.

In terms of earnings growth, diversified financiers are expected to lead the sector, followed by vehicle financiers, MSME and gold loan lenders, and housing finance companies.

MFIs are also expected to report a recovery in earnings, supported by a low base from the previous year, according to JM Financial.

Lenders focused on gold loans, MSMEs and LAP are expected to maintain strong growth in assets under management (AUM) supported by a rise in loan disbursements.

Growth is likely to be driven by a gradual recovery in loans against property and sustained demand for gold loans, while easing credit costs could support profitability.

We expect AUM growth of ~27%/6% YoY/QoQ supported by disbursement growth of ~33% YoY, due to a gradual LAP pickup and healthy growth in gold loans, it noted. (ANI)