Home, vehicle loans save the day for NBFCs

MUMBAI: Non-banking financial companies are expected to report strong growth in home and vehicle loans in the fourth quarter of fiscal 2017, but subdued performance in gold and microfinance segments that still struggle due to the impact of demonetisation.

“NBFCs are likely to see moderation, posting an 11% year-on-year increase in profit after tax after three consecutive quarters of 16-20% growth,“ brokerage firm Motilal Oswal said in a report.

The brokerage predicts 44% profit growth at Bajaj Finance. Among the rest, it expects profit to expand 30% at Dewan Housing, 26% at Indiabulls Housing Finance, 19% at LIC Housing Finance, 23% at Muthoot Finance and 18% at Gruh Finance.

Housing finance companies are expected to report a better Q4, as disbursements picked up after a lull third quarter. Interest subvention schemes to support housing for the middle income groups also gave a boost to the sector.

On microfinance, Motilal Oswal said there could be pressure “as the worst is yet to come“. Some reports suggest the effect of lower collections by the microfinance industry in Uttar Padesh and Maharashtra spreading to Karnataka as well. Recently , ratings firm ICRA downgraded the outlook for Janalakshmi and Satin Creditcare, which the brokerage said spelt concerns for the entire MFI sector.

Centrum, in a report, said it expected asset finance companies to report a sequentially strong quarter on both growth and profitability. But the MFI space continues to be under pressure following lower collection efficiency and the risk of eventual writeoffs, it added. HDFC Securities expects vehicle finance companies to report better earnings.

Implementation of the Bharat Stage IV emission regulation from April 1 benefitted lenders, as people queued up to purchase vehicles meeting the previous BS III rules that manufactures sold at huge discounts towards the year end.

As NBFCs benefitted from a decline in borrowing costs, broking firms expect vehicle finance companies to report healthy net interest margin. Gold loan companies are expected to report muted growth, mainly due to the effects of demonetisation and ban on transactions above Rs 20,000 in cash.

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