NBFCs loan growth to rise 19% in Q1 FY26 (YoY): Morgan Stanley

ANI June 24, 2025 264 views

Morgan Stanley predicts NBFCs will maintain 19% loan growth in Q1 FY26, mirroring FY25's fourth-quarter performance. Profit growth is expected to rebound to 15% YoY, aided by capital gains and improved margins. Life insurers show mixed trends, with some benefiting from rising demand for guaranteed products post rate cuts. Meanwhile, capital market firms continue strong earnings but face valuation concerns.

"We expect aggregate loan growth to remain stable at +19% YoY, +4% QoQ in 1QF26" – Morgan Stanley
New Delhi, June 24: Loan growth for non-banking financial companies (NBFCs) is expected to remain steady in the first quarter of FY26, rising by 19 per cent compared to the same period last year, and 4 per cent over the previous quarter, according to a recent report by Morgan Stanley.

Key Points

1

NBFC loan growth steady at 19% YoY in Q1 FY26

2

Net profits to rise 15% YoY boosted by capital gains

3

Life insurers see varied APE growth amid rate cuts

4

Capital market firms post strong earnings but face high valuations

This pace is similar to the 19 per cent annual growth reported in the fourth quarter of FY25.

The report stated "On NBFCs, we expect aggregate loan growth to remain stable at +19 per cent YoY, +4 per cent QoQ (+19 per cent in 4Q) in 1QF26".

The report also expects net profit for these lenders to grow by 15 per cent year-on-year in the June quarter, up from 5 per cent in the March quarter.

The growth is partly due to gains from capital raising activities and a turnaround in profits of a few players who had posted losses in the previous quarter.

Even after adjusting for one-time gains, underlying profit growth is likely to be around 18 per cent year-on-year, higher than 11 per cent growth seen in the previous quarter.

This improvement is largely because the base of the June 2024 quarter was weak due to higher credit costs and lower margins.

In the life insurance space, the report noted that some companies are better placed than others due to stronger growth in annual premium equivalent (APE) in April and May 2025.

The forecast includes around 9 per cent and 6.5 per cent growth in APE in June for the stronger performers.

Meanwhile, another key player would need at least 9.5 per cent APE growth in June just to meet its flat quarterly estimate, following weak trends in the first two months of the quarter.

Growth in value of new business (VNB) is also expected to vary. Some insurers are likely to see double-digit growth, supported by rising demand for non-participating guaranteed products after recent interest rate cuts.

However, others may report flat margins, with outcomes hinging on June performance.

In non-life insurance, the report holds off on giving forecasts due to pending company disclosures and regulatory clarity.

The report added that new business growth for digital insurance distributors is expected to slow for the second straight quarter due to a high base from last year, when the segment grew over 65 per cent in the first quarter.

Meanwhile, capital market-related companies are expected to post strong earnings growth, driven by buoyant market activity.

However, the report warned that valuations in this segment are already high, and recommends a neutral to cautious view.

Reader Comments

R
Rahul K.
This is good news for our economy! NBFCs play crucial role in reaching underserved segments where traditional banks can't. 19% growth shows strong financial health. Hope this translates to more credit access for MSMEs in tier 2/3 cities. 🇮🇳
P
Priya M.
Impressive numbers but we must watch the NPA levels. Last year my cousin took personal loan from NBFC at 18% interest when banks were offering 12%. RBI should ensure fair practices continue alongside this growth.
A
Amit S.
As someone who works in fintech, I see this growth first-hand. Digital lending platforms are booming! But caution - many new players are compromising on due diligence for quick growth. Hope regulators keep tight watch 👀
S
Sunita R.
The insurance sector growth is interesting. After LIC's successful IPO, more Indians are becoming aware of financial products. But companies must improve claim settlement ratios - that's where real trust is built.
V
Vikram J.
Morgan Stanley's reports are always insightful. However, I wish they'd analyze regional variations - NBFC growth in South India is very different from North. One-size analysis doesn't capture India's diversity properly.
N
Neha P.
While numbers look good, we must remember many Indians still lack basic banking. Hope NBFCs use this growth to serve rural areas better. Financial inclusion should be priority, not just profits. #JanDhanYojana showed the way!

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NBFC Morgan Stanley loan growth FY26 Q1 results financial sector