Q2FY19 preview: NBFCs' medium-term challenges to stay; not yet time for buy

Asset quality for NBFCs has so far been under control, but a sharp rise in interest can start having some issues with interest servicing capability of borrowers

Non-banking financial companies (NBFCs) in India or across the globe have a simple business model —  borrow from banks or capital markets in the form of non-convertible debentures (NCD) or (commercial papers) CPs or any other financial instruments and lend to end users. While the regulator/nodal agencies like RBI/ NHB (National Housing Bank) also lend to the set of finance companies, a large part of the borrowing has to be done from the markets to meet their business growth.

While the business model looks easy on the face of it, it is a complex process as the NBFCs/HFCs (housing finance