Now Reading: NBFCs pivot to retail, MSME loans to shield margins from rising costs
-
01
NBFCs pivot to retail, MSME loans to shield margins from rising costs
NBFCs pivot to retail, MSME loans to shield margins from rising costs
Non-banking finance companies (NBFCs) are moving their loan mix towards higher-yielding retail and MSME segments to offset rising borrowing costs, according to Kotak Institutional Equities.
Non-banking finance companies (NBFCs) are moving their loan mix towards higher-yielding retail and MSME segments to offset rising borrowing costs, according to Kotak Institutional Equities.
Most NBFCs have shifted borrowings to banks, with the first quarter of FY27 showing a sequential increase in costs. Several lenders expect flat to 10-15 bps rise in funding costs over the next nine months. A 50 bps repo rate hike could drag costs by 5-15 bps for most NBFCs.
Aditya Birla Capital and Tata Capital are better placed to benefit from the retail shift, the report said. However, competitive intensity remains high, especially from aggressive PSU banks in the prime market. The report expects high asset-under-management growth for most covered NBFCs in FY27, but individual margin dynamics vary by lender.
Indian Opinion Analysis
The Kotak Institutional Equities report tracks a structural shift that has been building since the RBI tightened liquidity post-pandemic. NBFCs, which lost their traditional funding edge over banks after the IL&FS crisis, now rely heavily on bank borrowings, roughly 25-50% of which is repo-rate linked. That linkage makes them directly vulnerable to any RBI rate action, unlike the past when bond-based funding insulated them longer. The real squeeze will be tested when the one-year MCLR resets hit in FY28, because those resets lag the repo cycle by 12-18 months. For now, the pivot to retail and MSME lending is a margin-protection play, but it also exposes NBFCs to segments with higher credit risk, especially if economic growth slows. The RBI's next monetary policy review in early April will be a key signal for whether this pressure eases or deepens.
Source: bfsi.economictimes.indiatimes.com
This brief was synthesised by AI from the source linked above.
