Diversified non-banking financial companies (NBFCs) are expected to record stronger growth and improved profitability in FY27, supported by healthy loan expansion, stable asset quality and a gradual normalisation in credit costs, according to an Equirus Securities report.
The brokerage estimates its NBFC coverage universe could register approximately 19.4% growth in assets under management (AUM) during FY27. Net interest income (NII) is projected to increase by 24.7%, while pre-provision operating profit (PPoP) and profit after tax (PAT) are estimated to rise by 29.6% and 37%, respectively.
The sector's performance during Q1 FY27 was broad-based despite ongoing geopolitical uncertainties and seasonal pressures. Aggregate AUM increased by around 19% year-on-year and 4.6% sequentially, reflecting continued momentum across several retail-focused lending segments.
Growth was reported across personal loans, consumer finance, micro-LAP, housing finance, gold loans, commercial vehicle finance, tractor finance and rural mobility. Gold financing emerged as a notable growth segment, while established commercial-vehicle and rural-mobility franchises continued to support vehicle financing businesses.
Lenders have also maintained greater focus on underwriting standards. Improvements in customer leverage levels during Q4 FY25 and Q4 FY26, together with tighter credit assessment and better collections, are expected to support asset-quality performance.
Margin trends remained mixed in the first quarter. Higher funding costs and excess liquidity on balance sheets partly offset the benefit from improved lending yields. Funding-cost transmission, interest-rate movements and changes in portfolio mix are expected to remain important factors for margins. Equirus Securities anticipates broader margin normalisation during H2 FY27, which could support profitability when combined with operating leverage and lower credit costs.
Asset quality remained broadly stable during the quarter. Although GS2 and GS3 exposures recorded seasonal increases at some lenders, Stage-3 asset trends improved across most of the sector. Credit costs remained largely controlled, aided by stricter underwriting, improved collection efficiency and portfolio seasoning.
Going forward, monsoon conditions, rural cash flows, stress in the MSME segment, geopolitical developments and the interest-rate cycle are expected to remain key factors influencing NBFC performance. Nevertheless, the strong opening quarter of FY27 indicates that diversified NBFCs may have scope to sustain healthy loan growth and achieve further improvement in profitability through FY27. CASansaar