New Delhi [India], November 29 : Growth of non-banking financial companies (NBFCs) in India is expected to remain under pressure in the financial year 2025 due to a slowdown in loan disbursements and regulatory challenges, according to a report by Nomura.
The report highlighted that the strong asset under management (AUM) growth witnessed by NBFCs in FY23 and FY24 has weakened in FY25 so far, and this trend is likely to continue.
It said "The healthy AUM growth recorded in FY23/24 has come under pressure thus far in FY25F, and should persist due to lower disbursement growth in FY24/ 1H25"
The key reasons for the slowdown as per the report include reduced disbursement growth, a potential decline in unsecured loans such as personal loans, credit cards, and microfinance due to asset quality concerns, and tighter regulatory oversight.
Furthermore, moderation in the growth of vehicle sales and average selling prices (ASP) is expected to affect auto loan disbursements, particularly in the new vehicle segment.
However, the report remains optimistic about certain segments, including small and medium enterprise (SME) loans, loans against property (LAP), and used vehicle financing. These areas are expected to maintain growth momentum despite the broader slowdown in the sector.
The report also projected a continued decline in disbursement growth, which is expected to moderate to 12 per cent year-on-year in FY25, down from 19 per cent in FY24 and 38 per cent in FY22 and FY23.
Adding to the challenges, the cost of funds for NBFCs is likely to remain high. The expectation of imminent interest rate cuts has diminished, leaving little room for relief on borrowing costs.
In the second half of FY25, NBFCs may face further pressure due to a slowdown in bank loan growth to the sector. This is expected to push NBFCs towards costlier funding options, such as higher-rate borrowings.
The report said "With the expectations for imminent rate cuts waning, we do not expect any respite on cost of funds for NBFCs. Going forward, cost of funds should remain elevated, at least in 2H25F, driven by declining growth of bank loans to NBFCs".
Additionally, factors like rising marginal cost of funds-based lending rates (MCLR) for banks and the recent increase in the spread of NBFC yields over government securities (G-Sec) yields are likely to further strain profitability.
Overall, while certain segments may perform well, the broader NBFC sector is set to face significant headwinds in the near term.
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