India’s non-banking financial companies (NBFCs) are expected to sustain a healthy growth trajectory in the near to medium term, even as geopolitical uncertainty continues to cloud the broader economic outlook. Brokerage firm 360 ONE Capital said lenders under its coverage have largely retained their FY27 and medium-term growth targets, supported by resilient demand for credit.

The brokerage expects asset quality across the NBFC sector to remain broadly stable. However, pressure on lending yields and net interest margins (NIMs) could become increasingly important, particularly for companies focused on gold loans and affordable housing finance.

NBFCs covered by 360 ONE Capital, excluding power financiers, posted a strong performance during the first quarter of FY27. Net interest income (NII) increased 23.9 per cent year-on-year, while operating profit climbed 24.9 per cent. Profit after tax (PAT) recorded an even stronger 36.9 per cent YoY increase. Aggregate assets under management (AUM) expanded by around 19 per cent during the quarter, broadly matching the brokerage’s expectations.

Credit Demand Remains Resilient Despite Global Uncertainty

Management commentary across the sector suggests that borrowing demand has remained firm. According to 360 ONE Capital, the ongoing West Asia crisis has so far had limited impact on credit growth.

Early indicators of delinquencies have also remained reassuring. The brokerage found no meaningful deterioration in asset quality that could be attributed to geopolitical tensions or El Niño conditions. Stressed assets have largely remained stable across most lending categories.

The overall picture indicates that NBFCs continue to benefit from relatively healthy demand, although the operating environment could become more challenging if funding costs, competition or lending yields put greater pressure on profitability.

Vehicle Financiers Pick Up Pace

Vehicle finance emerged as one of the stronger segments during the quarter. AUM growth among vehicle financiers accelerated to 16.8 per cent YoY from 16.4 per cent in the preceding quarter.

The improvement was supported by robust disbursement activity, while management commentary pointed to continued demand for vehicle loans. The brokerage noted that the segment has so far seen limited disruption from monsoon conditions or geopolitical developments.

The performance suggests that vehicle financiers remain relatively well positioned as long as consumer and commercial vehicle demand continues to support fresh loan disbursements.

Housing Finance Growth Falls Short of Expectations

Housing finance companies (HFCs), meanwhile, delivered a more subdued performance. Their AUM increased 5.6 per cent YoY, below expectations, with elevated balance transfers out at LIC Housing Finance contributing to the slower expansion.

LIC Housing Finance subsequently reduced its FY27 loan growth target to 8-10 per cent, compared with its earlier guidance of 10-12 per cent. Other leading prime HFCs, however, continued to maintain their existing growth outlook.

The housing finance segment could therefore remain a key area to watch, particularly as lenders balance growth ambitions with competitive pricing and pressure on yields.

Gold Loan Growth Moderates As Competition Intensifies

Gold financiers continued to post rapid expansion, although the pace of growth moderated. The segment’s AUM rose 47.1 per cent YoY after gold prices stabilised and new gold loan guidelines were implemented.

While the growth rate remains significantly higher than that of several other NBFC segments, 360 ONE Capital identified lending yields as a major concern. Increasing competition could make it difficult for gold financiers to maintain spreads while continuing to expand their loan books.

Margin performance will therefore be closely watched in coming quarters, particularly if competitive intensity increases further.

Power Financiers Continue To Lag

Power financiers remained the weakest-performing category among the NBFC segments tracked by the brokerage. Their combined loan book grew just 2.3 per cent YoY and contracted 0.3 per cent sequentially.

The subdued performance stands in contrast to the stronger momentum seen across vehicle finance, gold loans and other lending categories.

At the broader sector level, margins were largely in line with expectations. However, Muthoot Finance recorded a sharper-than-anticipated contraction of around 300 basis points.