According to Jefferies report from the India Forum 2026, NBFCs are experiencing healthy loan demand and resilient asset quality in the September quarter, with early festive-season trends being encouraging. The report, based on discussions with nine NBFCs, noted that strong Q2 growth and asset quality trends were seen across the sector, with most NBFCs reporting stable asset quality even during the seasonally weaker September quarter. Jefferies expects most NBFCs to maintain broadly range-bound net interest margins (NIMs) in FY27, though higher rates could raise their cost of funds with some lag. The outlook for lending growth remains firm, with individual lenders indicating continued expansion across vehicle finance, consumer lending, MSME loans and other segments.
According to JM Financial, Indian NBFC stocks have fallen up to 9% over the past month due to increased anticipation of policy rate hikes and rising yields. The US Federal Reserve announced its first interest rate hike since 2023, increasing the benchmark rate by 25 basis points to 3.75-4%, while US bond yields on 10-year treasury notes crossed the crucial psychological mark of 5%. The negative impact on FY28 cost of funds due to soaring yields or rate increases is estimated at 25-45 basis points against a repo rate hike of 50 basis points for various NBFCs. The quantum would depend upon funding mix, composition of bank borrowings, maturity profile of bond borrowings and repricing risk on those bond borrowings, as noted by the domestic brokerage. Jefferies notes that rate hikes may increase funding costs, but companies may use loan repricing and changes in their lending mix to cushion the impact.
As reported by JM Financial, growth in bank loans to NBFCs and housing finance companies accelerated sharply to around 27% in FY26 and 32% year-on-year in Q1 FY27, significantly higher than just 6% YoY in FY25. The incremental share of new bank credit going to NBFCs jumped from 5% to 14-15% in the same timeframe. Several companies including Piramal Finance, LIC Housing Finance, HDB Financial Services, L&T Finance and SBFC Finance raised their bank-loan share sharply, mostly at the expense of NCDs, while companies like Poonawalla Fincorp and Aditya Birla Capital pivoted into NCDs. With bank-loan share of NBFCs' liabilities rising again, a rate hike would now feed faster into the overall cost of funds of NBFCs across a larger share of the book than before, according to JM Financial.
According to JM Financial's analysis, all housing finance companies, especially prime ones like LIC Housing Finance, PNB Housing Finance and Bajaj Housing Finance, appear to be the biggest beneficiaries in terms of positive impact on FY28 NIM and RoAs. Aadhar Housing Finance and Home First Finance Company India seem to be better placed than Aavas Financiers and Aptus Value Housing Finance India. All vehicle financiers will likely see negative NIM and RoA impact, though Shriram Finance can minimize the impact due to recent rating upgrade and equity infusion. All MFIs especially CreditAccess Grameen and Fusion Finance, along with gold and MSME lenders, should see negative NIM and RoA impact due to higher share of fixed or floating loan or liability books. Within diversified NBFCs, Bajaj Finance and Tata Capital should also see minor negative impact on their NIM and RoA less due to loan mix but more due to higher negative impact on its CoF.
Within diversified NBFCs, JM Financial believes that Aditya Birla Capital and Piramal Finance should see positive impact while L&T Finance and HDB Financial should see negative impact on NIM and RoA. The brokerage named Aditya Birla Capital, Piramal Finance, PNB Housing Finance, Aadhar Housing Finance, Mahindra & Mahindra Financial Services, Cholamandalam Investment and Finance Company, CreditAccess Grameen, Five Star Business Finance and Fedfina as its top picks. Jefferies reports that Shriram Finance expects its assets under management to grow about 17% in FY27 and 18-20% in FY28-29, while Aditya Birla Capital expects a 25% annualised growth rate over FY26-29. Shriram Finance reiterated a credit-cost guidance of 2% for the next two to three years, while Aditya Birla Capital retained its guidance at 1-1.1%. JM Financial highlighted that several names including Piramal Finance, LIC Housing Finance, HDB Financial Services, L&T Finance and SBFC Finance raised their bank-loan share sharply, mostly at the expense of NCDs, while a smaller group of companies like Poonawalla Fincorp and Aditya Birla Capital pivoted into NCDs, a strategy that looks well-timed now that yields have turned up.
