Non-banking finance companies (NBFCs) are likely to report much stronger earnings than banks in the July-September 2026 quarter, with profitability supported by their retail-focused loan books, according to Ajit Kumar, Lead BFSI Research Analyst at JM Financial Institutional Securities.
Kumar expects the earnings gap between banks and NBFCs to remain wide over the coming quarters, even as higher interest rates and changes to insurance commission regulations create different challenges across lenders. He said diversified NBFCs with a higher share of floating-rate loans are better positioned to benefit from the current rate cycle.
Kumar said JM Financial expects NBFCs to report more than 35% year-on-year profit growth in the July-September quarter, compared with around 12% for banks.
“For the banking sector, we are expecting 12% profit after tax (PAT) growth, but for NBFCs it is going to be more than 35% PAT growth.”
NBFCs Q2FY27 Business Update
He said the stronger earnings outlook comes despite both banks and NBFCs delivering credit growth of around 20%, highlighting the superior profitability of retail-focused NBFCs.
According to Kumar, more than 80% of NBFC lending is retail-focused, covering segments such as personal loans, consumer durables, microfinance and gold loans. Banks, on the other hand, are seeing a larger share of incremental lending going towards lower-yield corporate loans and loans to NBFCs, weighing on earnings growth.
Gold loans continue to grow, but competition is increasing Kumar said the gold loan segment remains one of the fastest-growing categories within financial services.
He noted that gold loan growth has exceeded 80-90% for banks and more than 100% for NBFCs, largely because higher gold prices have increased the value of collateral rather than because of higher volumes.
He also believes part of the slowdown in personal loan demand has shifted towards secured gold loans.
“Some bit of that pie has shifted to gold financing.”
Financial Valuations at a Glance
However, Kumar cautioned that the sector is becoming increasingly competitive as more banks and NBFCs enter the business.
He added that recent moderation in gold prices has made JM Financial slightly cautious on gold lending and said the shift from personal loans to gold loans will be an important trend to monitor over the next few quarters.
Rate hikes favour select NBFCs
Kumar said investors should focus on companies that are likely to benefit from rising interest rates.
He identified Aditya Birla Capital and Piramal Finance as JM Financial’s preferred diversified NBFCs because more than 70% of their loan books carry floating interest rates, allowing them to benefit when lending rates increase.
In vehicle finance, the brokerage prefers Cholamandalam Investment and Finance Company, followed by Shriram Finance.
Among housing finance companies, Kumar favours PNB Housing Finance and Aadhar Housing Finance, while FedFina and Five-Star Business Finance remain its preferred names in the MSME lending space. In microfinance, CreditAccess Grameen is the brokerage’s top pick.
Diversified NBFCs Q2FY27 Outlook
Large private banks remain preferred
Although Kumar expects NBFCs to outperform, he remains positive on large private sector banks, particularly HDFC Bank, ICICI Bank and Axis Bank, which he believes are well placed in a rising rate environment.
Among mid-sized lenders, he prefers City Union Bank, Ujjivan Small Finance Bank and DCB Bank.
Kumar said investors should watch three key developments over the coming quarters—September quarter earnings, the impact of rising interest rates on margins, and changes to insurance commission regulations—as these will determine the relative performance of lenders.
“If you leave aside these two events… the earnings growth for NBFCs is going to be very strong at least for the near future.”
For the full interview, watch the accompanying video
JM Financial expects NBFC earnings to beat banks; prefers Aditya Birla Capital, Chola and Piramal
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