NBFC outlook brightens, but housing lenders risk losing share to banks: Elara Securities

Prospects for non-banking financial companies (NBFCs) are improving, but housing finance companies (HFCs) may remain under pressure from banks, according to Shweta Daptardar, Vice President – Diversified Financials at Elara Securities.

Her comments come after pre-Budget meetings where the Finance Industry Development Council (FIDC) met the Finance Minister to present its key demands.

One key demand from FIDC was a dedicated refinance window for NBFCs, similar to the facility the National Housing Board provides to housing financiers. Daptardar said this request has been pending for more than three years. “A larger part of the NBFC business model success is largely contingent upon liability structures,” she said, adding that a stronger refinance mechanism would help stabilise funding.

Daptardar said the sector is recovering after a period of regulatory tightening from the Reserve Bank of India. “Thankfully, things are turning around for better,” she said. She expects NBFCs to be at a “vantage point” after quarter two of the financial year 2025-26 (FY26), with the second half of the year likely to show better momentum.

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In contrast, she said housing finance companies are finding it harder to compete because “banks have been proactive in terms of interest rates.” If the Reserve Bank of India (RBI) cuts rates again, she warned that “there is no way that NBFCs or HFCs can deal with this kind of competitive rates.”

While Daptardar declined any comment on Samman Capital's valuations, she said, “The market doesn’t like uncertainties… Samman Capital has been in news for a fairly long period."

Daptardar said quarter two of 2025-26 results showed that asset quality issues are easing across most NBFC segments, except for commercial vehicles, two-wheelers and some affordable housing loans. Personal loans and credit cards also showed signs of easing stress. She expects the second half to improve further as activity picks up and goods and services tax (GST) simplification supports demand.

Against this backdrop, she said diversified NBFCs such as Bajaj Finance, L&T Finance and Shriram Finance are positioned to benefit. She added that gold loan companies remain strong performers due to higher gold prices. She expects Muthoot Finance to maintain momentum due to its fundamentals and sees the company sustaining “20% loan compounded annual growth rate (CAGR)” over the next two years.

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Daptardar said SBI Cards is now past the spike in credit costs that pulled down its return ratios. After several years of 5% ROA, the metric had dipped to around 3%, but she said the worst is behind. She expects credit costs to “materially decline” over the next two quarters, leading to stronger earnings. She sees ROA rising toward “4.5%” by the financial year 2027-28 (FY28), supported by improving spends. Post-Diwali spending “has been holding up pretty well,” she noted, saying this will help the company’s ROE trajectory recover.

For the full interview, watch the accompanying video

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