NBFC Sector Sees Recovery in Loan Demand After a Long Time; Gold Loans and Vehicle Finance Drive Growth. Motilal Oswal Has Selected Three NBFC Stocks as Top Picks Based on This.
NBFC stocks: The environment surrounding loan demand in the NBFC sector is gradually improving after a long period. While the past few quarters showed a clear impact of sluggishness, some segments are now showing signs of regaining momentum. In particular, the gold loan and vehicle finance segments have begun to support the sector. Observing this changing trend, brokerage firm Motilal Oswal has included three NBFC stocks in its top picks.
Data for the December 2025 quarter indicates that recovery has begun in the NBFC sector, but not all segments are experiencing the same pace of growth. Some parts are progressing rapidly, while others are still under pressure.
Current Picture of Loan Growth in the NBFC Sector
The picture regarding loan demand in the NBFC sector is currently mixed. Some companies recorded good growth in the December 2025 quarter, while loan growth was weak in some segments. This clearly indicates that the process of improvement has begun in the sector, but it will still take time to become fully robust.
Rising inflation, stable interest rates, and changing customer priorities have affected the trajectory of the NBFC sector. In this environment, companies with a focus on safe and low-risk loan segments are performing better.
Strong Rebound in Vehicle Finance Segment
According to a Motilal Oswal report, the performance of vehicle finance companies currently appears to be the best. Total lending in this segment could grow by around 17 percent year-on-year.
Several factors are driving this growth. The festive season, GST cuts, and previously pent-up demand have boosted vehicle purchases. People took out more loans to purchase two-wheelers and four-wheelers, which led to an increase in the portfolios of vehicle finance companies.
Demand for vehicle finance is also improving in rural and semi-urban areas. This is expected to benefit NBFC companies operating in this segment further in the future.
Gold Loan Segment Emerges as the Fastest Growing Area
The fastest growth in the NBFC sector is being seen in the gold loan segment. According to the report, this segment’s business could grow by around 39 percent year-on-year.
High gold prices and people’s immediate cash needs have boosted the demand for gold loans. Muthoot Finance has performed particularly bly in this segment, with gold loan business growing by around 48 percent.
Gold loans are considered relatively safe as gold is pledged as collateral. This is why NBFC companies are focusing more on this segment, and investor confidence remains b here.
Growth in Housing Finance, But Challenges Remain
Assets Under Management (AUM) of housing finance companies are estimated to increase by around 11 percent annually. However, disbursement figures have been weaker than expected.
A major reason for this is increasing competition from banks. Banks are offering home loans at cheaper interest rates, which has put pressure on NBFC-based housing finance companies. In addition, loan disbursements were also affected by holidays during the quarter.
However, the road ahead looks slightly better for companies focused on affordable housing finance.
Microfinance Sector Still Under Pressure
Regarding the microfinance segment, the situation remains weak. Total lending by companies in this segment may either decrease or remain stable without significant growth. Lending companies are currently avoiding taking risks. They are focusing more on asset quality than lending to new customers. This is why many loan applications are being rejected.
Pressure on income in rural areas and increased defaults in recent quarters have made the strategy of microfinance companies cautious.
Borrowing Costs Lower, But Benefits Not Equal for All
The cost of borrowing for NBFC companies is consistently decreasing. However, not all segments are benefiting equally from this. Net interest margins may remain under pressure for large housing finance companies. However, affordable housing finance and vehicle finance companies are expected to benefit more from lower borrowing costs.
Margins for gold loan companies may also remain relatively b, as this segment has lower risk and better returns.
Signs of Stability in Asset Quality
Asset quality in most segments of the NBFC sector is currently stable. However, the situation of bad loans in microfinance companies is expected to improve gradually.
Experts believe that it may take a few more quarters for a completely normal situation to return in this segment. Asset quality remains relatively better in other segments such as vehicle finance and gold loans.
Profitability Picture in the NBFC Sector
Looking ahead, net profit in the NBFC sector is estimated to increase by around 26 percent annually. If microfinance companies are excluded from this calculation, profit could increase by around 19 percent.
This means that there is a significant difference in performance within the sector. Companies with safe and diversified loan portfolios may perform better going forward.
Motilal Oswal’s Top NBFC Picks
Keeping all these circumstances in mind, brokerage firm Motilal Oswal believes that companies focused on vehicle finance, gold loans, and diversified lending may perform better.
Based on this, the brokerage has identified three NBFC stocks as its top picks: श्रीराम Housing Finance, PNB Housing Finance, and Aditya Birla Capital. These companies have a relatively b business model and are operating in segments where demand is rapidly returning.
