A Jefferies report notes that NBFCs are seeing healthy loan demand and stable asset quality in the September quarter. However, potential interest rate hikes could raise funding costs, though companies may cushion the impact with loan repricing.
Non-banking finance companies (NBFCs) are seeing healthy loan demand and resilient asset quality in the September quarter so far, but a possible rise in interest rates could push up their funding costs, according to a Jefferies report. The report, based on discussions with nine NBFCs at the Jefferies India Forum 2026, said demand remained strong across key lending segments and early festive-season trends were encouraging. However, the timing of major festivals could affect September-quarter trends.
“Strong 2Q growth and asset quality trends” were seen across the sector, with most NBFCs reporting stable asset quality even during the seasonally weaker September quarter, the report said. Jefferies also noted that credit costs could “surprise positively” in the coming quarters.
Managing Margins Amid Rate Hikes
The report expects most NBFCs to maintain broadly range-bound net interest margins (NIMs) in FY27, even as higher rates could raise their cost of funds with some lag. “Most see range bound NIMs near term,” Jefferies said, adding that rate hikes could increase funding costs but that companies may use loan repricing and changes in their lending mix to cushion the impact.
Firm Growth Outlook Across Segments
The outlook for lending growth remains firm, with individual lenders at the forum indicating continued expansion across vehicle finance, consumer lending, MSME loans and other segments. Jefferies noted that Shriram Finance expects its assets under management to grow about 17 per cent in FY27 and 18-20 per cent in FY28-29, while Aditya Birla Capital expects a 25 per cent annualised growth rate over FY26-29.
Asset Quality and Credit Costs
Asset quality also remained steady across most segments. Shriram Finance reiterated a credit-cost guidance of 2 per cent for the next two to three years, while Aditya Birla Capital retained its guidance at 1-1.1 per cent. Jefferies said credit costs across the sector could remain contained if current asset-quality trends continue.
Varied Impact Across Lenders
The impact of higher rates could vary across lenders. Jefferies noted that some lenders have a sizeable share of floating-rate loans that could be repriced to cushion the impact of higher funding costs.
Festive Demand and Future Outlook
Jefferies also said early festive demand was strong, although the timing of major festivals could influence September-quarter numbers. The combination of sustained credit demand, stable asset quality and potential rate changes is likely to remain important for NBFC performance in the coming quarters.
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