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NBFC AUM growth seen at 20% in Q2FY27, funding costs emerge as key risk

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NBFC AUM growth seen at 20% in Q2FY27, funding costs emerge as key risk

NBFC AUM growth seen at 20% in Q2FY27, funding costs emerge as key risk

Rising funding costs are expected to become a key swing factor for NBFC earnings in the second half of FY27, with higher bond yields likely to weigh on margins.

Rising funding costs are emerging as a key risk, with 10-year G-sec yields up 25-40 bps since August and three and five-year AAA NBFC bond yields up 50-60 bps since June. Diversified NBFCs are expected to lead growth with 26% AUM expansion, while vehicle financiers are projected to grow 18% and HFCs/AHFCs 13%. Gold, MSME and LAP lenders are expected to post 27% AUM growth, supported by a gradual recovery in LAP and healthy gold loan growth, while disbursements could rise 33%. NBFC-MFI AUM growth is expected to accelerate to 21% YoY, supported by higher-ticket lending and recovery in core microfinance, with credit costs projected at about 3.3%.

Non-banking finance companies (NBFCs) are expected to maintain strong growth in the second quarter of FY27, with aggregate assets under management (AUM) of 23 NBFCs under coverage estimated to rise about 20% year-on-year, supported by robust disbursements and resilient retail demand. However, rising funding costs are expected to become a key swing factor for NBFC earnings in the second half of FY27, with higher bond yields likely to weigh on margins. The 10-year government bond yield has risen 25-40 basis points since August, while yields on three and five-year AAA-rated NBFC bonds have increased 50-60 basis points since June as markets factor in a possible repo rate hike, JM Financial said in a report.


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