NBFCs Q4 Preview – Asset Quality Improvement, Sequentially Lower Credit Costs On The Cards: Motilal Oswal

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We expect our coverage universe of non-banking finance company – lending financials to deliver 10% / 6% / 35% YoY growth in net interest income / pre-provision operating profit / profit after tax, respectively, in Q4 FY22.

In general, Q4 of a fiscal year is a seasonally strong quarter in terms of asset quality and we expect Q4 FY22 to be no different. We forecast a stronger improvement in asset quality for Cholamandalam Investment and Finance Company Ltd., Mahindra and Mahindra Financial Services Ltd. and Aavas Financiers Ltd. while the improvement for the other NBFCs / housing finance companies in our coverage will be more measured.

Importantly, we expect credit costs to be sequentially lower during the quarter except for Mahindra Finance.

Despite the Reserve Bank of India clarification on the non-performing asset circular and the subsequent deferment of the guidelines’ implementation to September 2022, most companies that have implemented the circular already (in Q3) will continue to follow the same classification methodology in Q4 FY22 .

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