Growth concerns, a major pain point for investors in financials  

There are concerns over muted loan growth and an uncertain demand recovery.

Feedback from two major investor interactions, JM Financial’s Asia marketing trip and Macquarie Asia Conference 2025, revealed a common thread : concerns over muted loan growth and an uncertain demand recovery. Both brokerages say these are dragging down investor enthusiasm despite multiple rate cuts since February 2025.

According to JM Financial’s discussions with over 25 institutional investors in Singapore and Hong Kong, banking system credit growth had slipped to a mere 9 percent year-on-year as of May 2025, the lowest since March 2022. Growth year-to-date stood at just 0.2 percent, a sharp compression seen against2.1 percent growth in the same period last year.

While regulatory moves by the Reserve Bank of India (RBI) -- including a 100 bps repo cut since February and 100 bps CRR cut, easing of project finance norms, and deferment of ECL norms -- were received positively, investors remained skeptical that these alone could be a catalyst to a rebound, JM Financial’s report said.

The broader consensus was that income growth among the population needs to improve for real credit demand to pick up.

The Macquarie Asia Conference 2025 echoed similar concerns.

While financial institutions presenting at the event anticipated a modest recovery in FY26 -- aided by better monsoons, tax cuts, and potential rate easing -- growth projections were tepid at best, hovering around 100-200 basis points above the 11 percent credit expansion recorded in FY25, Macquarie reported.

According to the report, the outlook for unsecured loan growth, after months of deceleration, is “cautiously optimistic,” with managements expecting improvement from the third quarter of FY26.

For NBFCs and HFCs, the outlook was equally restrained.

NBFCs and HFCs

Investors flagged possible downside risks to FY26 asset under management (AUM) growth targets for leading players like Bajaj Finance and Cholamandalam Investment due to slower-than-expected consumer durable and auto loan demand, the Macquarie report said.

Housing financiers, meanwhile, were weighed down by the rising pace of balance transfers following rate cuts, which threaten to dent both growth and net interest margins (NIMs, a measure of profitability for lenders), the report said.

Moreover, margins across the financials space are seem equally challenged at this juncture.

Macquarie further reported that banks are relatively more confident about margin recovery by end-FY26, bolstered by their ability to cut deposit rates and manage liquidity. However, JM Financial highlighted that investor understanding of NBFC or mid-banks NIM dynamics may be skewed.

Given the shift from unsecured to secured loan portfolios and intense pricing pressure, NIMs in these segments may rise only marginally by 10-15 basis points despite the 100-basis point decline in rates, JM Financial reported.

Asset quality, though not currently flashing red, is under close investor scrutiny.

Large banks and major HFCs continue to inspire confidence, but concerns are rising for mid-sized NBFCs and banks, particularly around FY26 credit costs being higher than management guidance.

Institutions such as Bajaj Finance, AU Small Finance Bank, and CIFC were flagged as having elevated risk perception in the near term, with expectations of improvement only from the second half of the fiscal year, according to JM Financial.

Strategically, the JM Financial report said, investors appear to be skewing towards large banks like SBI, Axis Bank, and Bank of Baroda, where benign asset quality trends and low valuations offset the expected NIM pressures. While ICICI Bank continues to hold attention, some investors expressed fatigue over its high valuations amid slowing loan growth.

Among mid-sized banks, RBL, Bandhan, and Ujjivan found favour due to perceived peaking of stress in unsecured and MFI portfolios.

In the NBFC and HFC space, Aditya Birla Capital and PNB Housing had a positive investor sentiment due to strong growth visibility and manageable asset quality risks, reported JM Financial.

Shriram Finance garnered mixed views, praised for growth and value, but flagged for rising slippages.

JM Financial also noted that investors generally preferred Bajaj Finance over CIFC owing to a more diversified loan book, while lower expectations and valuation made Mahindra and Mahindra Financial Services (MMFS) relatively more attractive. LIC Housing Finance particularly stood out as a potential dark horse purely on account of its low valuation.

According to the brokerage's note, an investor, identify was not revealed by the company said, “Rate cuts alone will not deliver growth. What we need is a demand cycle."

Until that changes, growth concerns will continue to weigh heavily on investor outlook for India’s financial sector, the report said.