NBFC Q2 earnings preview| PAT to grow 8-28% YoY on stable margins, improving asset quality

NBFC

Non-banking finance companies (NBFCs) are expected to report an 8-28 percent year-on-year (YoY) growth in profit after tax (PAT) in the second quarter of FY26, on back of stable margins and improving asset quality, reports from brokerage firms said.

However, credit costs will remain elevated on the continued trend of stress in smaller-ticket loans.

“Margins are expected to improve as funding costs ease and collection efficiency strengthens, while steady asset quality and stable-to-moderating credit costs should help sustain profitability through the year,” Emkay Global Financial Services said in its report.

It expects Cholamandalam Investment to report a PAT growth of 22 percent YoY and 3.2 percent QoQ, Mahindra Finance to report 27 percent YoY and -11.1 percent QoQ PAT growth, Shriram Finance to report 8 percent YoY and 3.8 percent QoQ PAT growth, and Bajaj Finance to report a PAT growth of 28 percent YoY and 7.9 percent QoQ .

Similarly, Axis Securities Equity Research expects Cholamandalam Investment to report a 20.2 percent YoY and 1.9 percent QoQ PAT growth, Shriram Finance to report a 5.5 percent YoY and 1.3 percent QoQ growth, and Bajaj Finance to report a 23.4 percent YoY and 3.9 percent QoQ PAT growth.

Further, REC and PFC are likely to deliver strong profitability in Q2FY26, supported by recoveries from stressed assets and resilient asset quality. Loan disbursements in the power sector are expected to remain subdued on accelerated repayments by state utilities, which likely impacted AUM growth.

Asset quality

Brokerage firms expect asset quality of most NBFCs to remain broadly stable amid better customer selection, stricter credit underwriting, and improved collection efforts.

Motilal Oswal, in its report, said that stress persisted in the unsecured MSME and micro-LAP segments, with credit costs expected to edge higher. Vehicle finance will continue to see asset quality deterioration, largely driven by monsoon-related disruptions that weighed on fleet utilisation.

For microfinance institutions, credit costs are likely to moderate sequentially, having peaked in Q4FY25. However, they are expected to remain elevated and will approach normalisation only in the latter half of FY26, the report added.

AUM growth

Assets under management (AUM) of NBFCs are expected to grow 20 percent YoY and 4 percent QoQ in Q2FY26, brokerages expect. This growth, Axis Securities said, is primarily driven by diversified financiers (+23 percent YoY and 5 percent QoQ), vehicle financiers (+18 percent YoY and 3 percent QoQ, and housing financiers (+12 YoY and 4 percent QoQ).

Incread Research report expects AUM growth to be 12-21 percent YoY for vehicle financiers, 16-27 percent YoY for affordable housing lenders, and 11-26 percent YoY for other lenders (non-microfinance or MFI).

Margins and credit cost

NIM movement will range between flat-to-positive by 10 bps QoQ across players as banks gradually pass on the policy rate cut to borrowers. This is aided by stable yields on the asset side, given that a large portion of  NBFC lending is fixed-rate in nature – vehicle finance, unsecured personal loans, SME and MSME loans, and credit cards, brokerage firms said.

Further, credit costs are likely to remain steady QoQ. For microfinance institutions, credit costs during the quarter are expected to remain elevated mainly due to higher write-offs. “The pace of new customer additions seems to be bouncing back, and focus will remain on NTC customers with lower leverage,” Axis Securities said in its report.