Mumbai: Non-banking finance companies (NBFCs) recovering from a liquidity crisis will face some asset quality pressures, especially in the auto financing and real estate with large, higher rated companies better prepared to ride the challenges in the quarter ended December 2019.Analysts said companies like Housing Development Finance Corp Ltd (HDFC), Bajaj Finance and Cholamandalam Finance will continue to take away market shares from their smaller counterparts with better credit profile and access to low cost funds.Cost of funds for NBFCs remains high, though it is come down compared to last year, it still remains elevated as the mark-up above the benchmark bank lending rates remains high.
Real estate financing, micro finance loan and wholesale based NBFCs will see pressure on asset quality.
All in all, we will see tapered growth, higher credit costs and soft margins in the third quarter, said Shewta Daptardar, research analyst at Prabhudas Lilladher.
The slowdown in the auto and real estate sectors will have an impact on NBFCs linked to these sectors as the risk of delinquencies remains high.
However, the larger NBFCs, with greater access to funds, will continue to consolidate market share.The quarter is expected see market share consolidation to continue in favour of strong NBFCs.
Moreover, we expect stress in real estate to continue.
We expect most NBFCs/ public sector banks (PSBs) tocontinue to see soft business growth/profitability, but we expect stable NIMs for most private banks (PBs).
We remain constructive on PBs (particularly corporate players) and recommend sticking to NBFCs with strong franchise, said BNP Paribas-owned Sharekhan, in a note.Some NBFCs like Bajaj Finance continue to report healthy growth in their assets under management (AUM), though it is lower than the peak.
Earlier this month the consumer lender told stock exchanges its AUM had increased 35 per cent, which is much better than its peers, but its lowest growth in the last two years.However, a majority in the once buzzing NBFC sector will continue to reel under liquidity concerns with the economic slowdown putting elevated pressure on asset quality.