NBFC Stocks in Focus as Rising Funding Costs Threaten Margins Despite Strong Loan Growth

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For NBFCs, more disbursements also mean more money to arrange. Fresh borrowing comes at prevailing rates, while income from loans already issued may adjust more slowly. That gap creates near-term pressure. Over subsequent quarters, the effect depends partly on how much debt needs refinancing and how quickly lenders can adjust their loan pricing.

How Does This Affect NBFC Borrowers?

Housing and small-business lending remained active in Emkay’s assessment, alongside demand for gold loans. The brokerage also reported healthy auto and trade credit demand, although rural tractor and farm financing were weaker. Borrowing conditions therefore differed across customer groups, even with overall lending continuing to grow.

Our view is that applicants need to distinguish an NBFC’s business growth from the price of their own loan. For someone comparing NBFC personal loans, the offer’s total repayment amount is more useful than the lender’s disbursement figures. Processing charges add to that bill. Existing borrowers have a different question: whether their agreed rate can change, and when. A funding-cost warning alone does not revise an EMI.

What Are Analysts Saying About Margins and Collections?

Emkay expected credit costs to decline sequentially or stabilise. Collections, tighter underwriting and work on older stressed accounts supported that expectation. Credit costs concern loan losses; funding costs concern the money an NBFC borrows. Relief on loan losses can help earnings even while the lender pays more for funds.

In Crisil Ratings’ assessment dated 15 April 2026, director Malvika Bhotika expected bank borrowing to remain attractive, as corporate bond interest rates were higher than bank lending rates. Associate director Rounak Agarwal identified currency volatility as a difficulty for overseas borrowing. Crisil stressed maintaining access to different funding sources. That gives NBFC alternatives when rates rise sharply in a particular market.

Which Figures Explain the Earnings Outlook?

The earnings forecasts draw on more than lending margins. Jefferies expected loan-book expansion and lower credit costs to support September-quarter profits. Emkay, meanwhile, focused on the pressure from borrowing expenses. The estimates below describe those separate parts of the outlook.

The profit forecast covers a specified set of lenders. It should not be applied to every NBFC. Nor does a narrower spread necessarily mean lower total profit: income from additional lending and changes in loan-loss expenses also enter the calculation.

Why Are Bajaj Finance, Chola and Shriram in Focus?

Bajaj Finance and Cholamandalam Investment and Finance Company faced possible net interest margin declines in Jefferies’ assessment. The brokerage expected potential improvements at Shriram Finance, Poonawalla Fincorp and Piramal Enterprises.

Its preferred names nevertheless included Bajaj Finance and Cholamandalam, together with Aditya Birla Capital and Shriram Finance. The assessment therefore did not treat margin pressure as the only consideration. Growth and credit costs formed part of the earnings case, with the balance differing across companies.

What Had Changed Before the October Assessments?

Lending had picked up before the September earnings previews. A government news update published on 7 August 2026 recorded 14.4% annual NBFC credit growth in June 2026. Housing, vehicle and gold lending contributed to faster retail expansion, while growth in industry lending slowed.

Funding arrangements were changing too. Crisil’s April assessment recorded lower bond issuance and increased bank borrowing between the first and second halves of FY26. Earlier, the Ministry of Finance’s Economic Survey release dated 29 January 2026 had emphasised domestic financing channels as a buffer against volatile global finance. That was a broader financial-sector assessment, rather than an NBFC earnings forecast.

Conclusion

NBFC earnings expectations remain supported by demand and collections. The pressure comes from paying more to fund that demand. The October research puts borrowing expenses, lending yields and loan losses alongside loan growth when assessing profitability. For shareholders, disbursement growth is only part of the earnings picture.

FAQs

Why Are NBFC Margins Under Pressure?

Emkay expects funding expenses to rise against stable or moderating loan yields. The resulting gap leaves lenders with a smaller spread from lending.

How Can NBFC Profits Grow While Margins Fall?

A growing loan book brings additional interest income. Lower provisions for loan losses can also help profits absorb pressure on lending spreads.

Are the September-Quarter Profit Figures Confirmed Results?

No. The 34% figure is Jefferies’ forecast for its covered NBFCs, excluding Piramal Enterprises and IIFL Finance.

Do Changes in Interest Rates Automatically Change an NBFC Loan’s EMI?

The loan agreement determines how rates change. Floating-rate loans follow their applicable benchmark and reset terms, while fixed-rate contracts have different pricing arrangements.

Can a Borrower Replace Expensive NBFC Loans With a Bank Loan?

Yes, subject to the bank’s approval. Any savings must account for transfer expenses and the remaining repayment period. A smaller EMI achieved through a longer tenure does not necessarily reduce total interest.