CONNECT WITH US
Fintech

Fintech

NBFCs may turn to higher-yield retail, MSME loans to protect margins

ET BFSI Fintech logo

Published on

Add as a preferred source on Google
NBFCs may turn to higher-yield retail, MSME loans to protect margins

The change in product mix is expected to provide some cushion against higher funding costs, with Aditya Birla Capital and Tata Capital among the lenders better placed to benefit from the trend.

NBFCs are increasingly shifting their loan mix towards retail and MSME segments, which typically offer higher yields than corporate loans , as rising borrowing costs are expected to pressure margins. The change in product mix is expected to provide some cushion against higher funding costs , with Aditya Birla Capital and Tata Capital among the lenders better placed to benefit from the trend. Marginal NIM pressure is expected in 2HFY27E, with the pressure increasing in FY28E as borrowing costs rise. Trends in product mix and competitive intensity will determine the extent to which asset-side yields can offset higher funding costs, according to Kotak Institutional Equities. Advt

Most NBFCs have shifted borrowings towards banks, although bond market activity has recently picked up. The first quarter of FY27 saw an increase in sequential borrowing costs, with several lenders guiding for flat to 10-15 bps increases in cost of funds over the next nine months. A 50 bps increase in the repo rate could result in a 5-15 bps drag on cost of funds for most NBFCs, given that 25-50% of their bank borrowings are linked to the repo rate. The impact of higher funding costs could be partly offset by asset-side expansion. Kotak expects retail/MSME loans to gain share from corporate loans, which typically carry lower yields. Aditya Birla Capital is shifting its mix towards retail from corporate loans, which should support margins over the medium term, while Tata Capital is also expected to benefit from a general shift towards retail.


Source link
Related Topics:Fintech

Disclaimer

We strive to uphold the highest ethical standards in all of our reporting and coverage. We TheMorningPulse.fyi want to be transparent with our readers about any potential conflicts of interest that may arise in our work. It's possible that some of the investors we feature may have connections to other businesses, including competitors or companies we write about. However, we want to assure our readers that this will not have any impact on the integrity or impartiality of our reporting. We are committed to delivering accurate, unbiased news and information to our audience, and we will continue to uphold our ethics and principles in all of our work. Thank you for your trust and support.