NBFCs with shorter tenure assets better placed to deal with margin worries

Stocks of non-banking financial companies (NBFCs) and housing finance companies (HFCs) continued to trade in the red on Monday, for a consecutive session. Stocks of many HFCs fell 5-10 per cent and those of NBFCs by up to eight per cent. Worries over net interest margin (NIM) and balance sheet growth, amid expected challenges in funding growth at reasonable cost, are weighing on the stocks. Though liquidity is also a problem, analysts do not see this as serious a concern as compared to pressure on NIMs.After the IL&FS issues, experts believe lenders to NBFCs and HFCs will be more cautious, raising the cost of funds and thus putting pressure on NIMs. Many NBFCs have 37-46 per cent exposure to market borrowing (other than banks); it is higher (53 to 59 per cent) for HFCs. Anil Gupta, head for financial sector ratings at ICRA, expects a 10 basis points (bps) rise in cost of funds to impact the NIMs of NBFCs, including HFCs, by six to eight bps, depending on their leverage ...

from Markets https://ift.tt/2OO7Smz