NBFCs face rising risks from Iran conflict-led fuel shock: Nomura

NBFCs face rising risks in business, MSME, and vehicle loan segments due to the Iran conflict's fuel supply shock, says a Nomura report. It flags concerns over fuel price hikes, which will increase cost pressures and credit costs for borrowers.

Non-banking financial companies (NBFCs) may face rising risks in select loan segments amid a fuel supply shock triggered by the ongoing Iran conflict, with business, MSME and vehicle loans emerging as the most vulnerable categories, according to a report by Nomura.

Impact on Business and MSME Loans

The report assessed the impact of the Iran war, assuming it drags on for one month, and flagged growing concerns over segments directly linked to fuel consumption and economic activity. It noted that NBFCs are likely to turn "increasingly cautious on business, MSME, vehicle loans segments where we expect an immediate and direct impact of the fuel supply shock." Industrial diesel prices have already been increased, and the report cited that retail fuel prices are expected to be raised gradually after the state elections at the end of April 2026. This is likely to increase cost pressures across businesses, especially small enterprises. It stated, "retail prices to be hiked gradually after state elections (end-Apr26)".

According to the report, secured and unsecured business loans, including loans against property, account for about 24 per cent of NBFC credit in India. These segments are already showing signs of stress, with recent feedback indicating fuel shortage and price hike-related challenges faced by MSMEs. "Some of them are trying to use alternate sources to keep their shops running while others have written to the government urging for support," the report said.

The report expects that NBFCs will remain cautious on business and MSME lending, with the segment likely to see elevated credit costs from the first quarter of FY27. There is also a risk that NBFCs may slow down disbursals in these categories.

Pressure on Vehicle Loan Segment

Vehicle loans are also expected to face pressure due to a combination of rising fuel costs and weaker economic activity. Fleet operators may face higher diesel and petrol prices, along with reduced vehicle movement. While large operators may be able to pass on higher fuel costs, individual vehicle owners could face repayment challenges.

The report noted that the vehicle loan segment, which had benefited post-COVID from stable fuel prices, healthy freight rates and strong economic activity, now faces downside risks due to global developments. (ANI)

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