NBFC FY27 earnings: improved liquidity, easing of borrowing costs and better asset quality indicate good times ahead

A combination of cleaner balance sheets, compared to last year, and improved loan growth could see non-banking financial companies (NBFCs) starting the financial year on a strong footing.

After a high cost of borrowing which plagued them throughout 2025, analysts expect that there could be a short drag on margins in the current quarter, compared to the previous quarter, as the cost of funds from bank lines remained elevated. The re-escalation of the West Asia war in July could also mean that there will be some more time before which costs will start to ease in the current year, analysts said.

But at the macro level, the larger nervousness around global events and its impact on the Indian economy has receded, and thus cost of fund pressure should ease. Management commentary around cost of borrowing from banks and bond issuances are critical to watch out for. “Separately, the trends on asset quality in vehicle and select SME segment are still an important monitorable," Nomura's analysts Shreya Shivani and Ankit Bihani, said in a report to clients.

Micro-finance NBFCs such as Credit Access Grameen and affordable housing financiers such as Aadhar Housing Finance could be better placed, the Nomura report said. Nomura has a full-year loan growth estimate of 22% year-on-year for Credit Access Grameen, as the microfinance ecosystem and asset quality starts to improve.

Abhijit Tibrewal and Raghav Khemani of Motilal Oswal said that FY27 could mark the beginning of a broad-based earnings uptrend for NBFCs. "We believe the combination of abundant liquidity, potentially easing incremental borrowing costs, stable margins and significantly cleaner balance sheets creates a favorable backdrop for NBFCs to accelerate growth," they said.

The Motilal Oswal analysts see Shriram Finance, L&T Finance, Five-Star Business Finance and PNB Housing Finance as preferred picks.

The banking system could also see improved liquidity in the next few quarters, which will need to be watched closely. The RBI has allowed banks to swap foreign currency funds with itself, thus removing hedging costs and help boost foreign capital into India.

"The impending influx of liquidity into the Indian banking system through FCNR(B) deposits could emerge as one of the most important catalysts for NBFCs over the next few quarters," Tibrewal said, as banks are expected to deploy this liquidity, which will benefit NBFCs.

Nischint Chawathe, Varun Palacharia and Chirayu Maloo of Kotak Institutional Equities say that while escalation of the West Asia war and fears of inflation dominated investors’ mindshare for most of 1QFY27, they expect "NBFCs, large caps and mid-caps, diversified and monoline, to deliver a strong quarter."

All the analysts agree to the point that a weak monsoon and the re-escalation of the West Asia war could pose as the key risks to growth to the sector.