India Ratings forecasts margin pressure for NBFCs in FY25

India Ratings and Research expects net interest margins (NIMs) of non-banking finance companies (NBFCs) to be under pressure at least during the first half of FY25. It has a neutral outlook on the sector considering factors such as ongoing growth, stable asset quality, and adequate capital buffers.

Speaking to CNBC-TV18 to Pankaj Naik, Director at India Ratings & Research said, “Post the increase in the risk weights (by the RBI), obviously, the funding cost increased for NBFCs from banks, and banks had already taken a good amount of exposure on the NBFCs sector per se. So we had factored that in. We did the articulate that we will see some margin compression, which we saw in FY24. We believe the rates are going to be alleviated even for FY25.”

He attributed this compression in margins not only to the increased funding costs but also to the rising leverage within the sector. As leverage grows, the equity contribution towards growth decreases, further impacting margins.