Indian NBFCs' margins to drop in FY25 even if RBI cuts rates - Ambit Capital

Mahindra and Mahindra Financial Services

26/02/2024 09:30

** Indian NBFCs' net interest margins (NIM) will drop in
FY25 even if the RBI lowers rates by 50 bps, says Ambit Capital
    ** Brokerage notes NBFCs' cost of funds rose ~45 bps in
Q1-Q3 FY24 despite repo rate hikes/corporate bond yields peaking
in Q4 FY23
    ** Cites 25-30 bps hike in bank lending rates and marginal
cost of NCDs being 160 bps above cost of maturing NCDs
    ** Ambit expects NBFCs' cost of funds to rise 9-29 bps more
in FY25, compressing NIMs by 3-64 bps in base-case scenario
    ** Adds, NIMs will compress even if RBI reduces rates by 50
bps in H2, with benefit of cuts reflecting only in FY26
    ** Ambit Capital's top buys are LIC Housing Finance
 LICH.NS  and Shriram Finance  SHMF.NS  due to lower share of
bank funding, narrower spread in cost of marginal and maturing
NCDs
    ** Its top sells are Mahindra & Mahindra Financial Services
 MMFS.NS , Bajaj Finance  BJFN.NS  and Cholamandalam Investment
& Finance  CHLA.NS  due to bigger share of bank borrowings,
shorter NCD tenors and higher marginal cost of NCDs

 (Reporting by Savio Dsouza)
 ((savio.dsouza@thomsonreuters.com;))