Top 5 NBFC Stocks in India

1 Oct 2021  Read 2660 Views

Retail banking in India is a massive domain, providing services from deposits to loans and everything in between. But there is a specific sector providing specific services. They’re not banking institutions but rather, Non-Banking financial institutions commonly known as NBFC. 

NBFCs were born to cater to the needs of customers that the traditional banking system couldn’t fulfill. A ‘Superhero to the rescue’ sort of a situation. 

No holding back any further; let’s take a look at what they are & also explore the top 5 NBFC stocks in India.

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a member of the fraternity of institutions involved in lending and other banking activities like offering loans and advances, credit facilities, savings & investment products, portfolio management, and more. Surprisingly, it still can’t be called a BANK! 

But why not? After all, they are engaged in similar functions like any bank. 

Yeah, on looking from the outside, they do seem to be similar; however, there lie subtle differences between them.

  • NBFCs cannot open savings and current accounts as they don't have a banking license.
  • NBFCs are not allowed to accept demand deposits (Demand Deposit is a form of bank account which allows withdrawing money without any prior notice)
  • NBFCs are not a part of the payment and settlement system and are not allowed to issue cheques drawn on themselves. When you deposit money in a bank account, you get a checkbook and access to an online banking system. Under this system, you can ask your bank to make payments on your behalf either by issuing a cheque or through any online mode. But if you deposit money in one of the NBFCs, that sum cannot be used for paying or transferring it to anyone else. This is also a reason why NBFCs do not issue checkbooks
  • NBFCs do not have access to the Deposit insurance facility of DICGC, unlike the traditional banks 

Well, you might feel that these are minute differences. Yet, the NBFC is a whole other thing trading in exchanges as a separate sector…

Confused about how to find NBFC stocks? Don’t worry; you can check out the list of all NBFC stocks listed in NSE & BSE on Ticker by Finology.

To make your work easier, take a look at what we have for you.

Top 5 NBFC stocks in India

Listed below are the top 5 NBFC stocks, followed by the reasons which make them investment-friendly.

  1. Bajaj Finance Ltd. 

Bajaj Finance Ltd. is the biggest NBFC with an enormous market capitalization and is a prime player in the flourishing consumer finance segment. Moreover, it is also a technology enthusiast that functions to enhance its consumer acquisition and serving processes. 

It offers services in consumer finance (e.g., home loan, retail EMI), SME Finance (e.g., business loan, loan against shares), Commercial lending (e.g., warehousing financing, vendor financing), and investments (e.g., fixed deposits, mutual funds). 

Investment friendly factors: 

  • Income growth of 29.62% CAGR in the past 5 years
  • Profit growth of 28.15% CAGR in the past 5 years
  • Promoter shareholding of 56.03%

  (Source: BAJFINANCE)

2. Muthoot Finance Ltd.

Just another giant in the game of “pretending to be a bank.” 

The core business of Muthoot Finance is sanctioning loans against collaterals of gold jewelry, and these guys have maneuvered pretty well to reach the top spot. Impressive, eh?

The company offers flagship gold loans, housing finance, insurance, personal loan, vehicle loan, foreign exchange services, etc. 

Investment friendly factors: 

  • Robust income growth of 18.57% CAGR over the past 5 years
  • Remarkable profit growth of 36.1% CAGR over 5 years
  • Promoter shareholding of 73.45 as of June 2021

(Source: MUTHOOTFIN)

3. Power Finance Corporation Ltd.

It is the only company on the list which has achieved the status of a ‘NAVRATNA’ company in India. Power Finance is a state-administered firm as it has been placed under the administrative control of the Ministry of Power. 

The company is responsible for tasks such as inoculating financial support to Power Utilities for healthy growth of the power sector, power generation, transmission, and distribution. 

It also carries out its financial services such as fund-based policies/ products and non-fund-based policies/ products. 

Investment friendly factors: 

  • Impressive PAT margin of 21.91% clubbed with profit growth of 21.42% CAGR in the past 3 years 
  • The compounded growth rate of operating income by 13.83% CAGR over the past 3 years
  • Profit growth of 21.42% CAGR within 3 years

(Source: PFC)

4. Cholamandalam Investment and Finance Company Ltd. 

Chola Investment & Finance is one of the largest NBFC in India, offering products and services like vehicle loans, loans against properties, home loans, SME loans, Rural and Agri loans, as well as wealth management services. It is a financial arm of the Murugappa Group.

Investment friendly factors:

  • Strong operating income growth of 20.2% CAGR over the past 3 years
  • Whopping 43.95% growth in profit in 1 year and sustainable profit growth of 21.66% over the past 5 years
  • A healthy Return on the Equity track record of 17.66%

(Source: CHOLAFIN)

   5. SBI Cards and Payment Services Ltd. 

It is one of the largest credit card providers, with millions of credit cards already floating in the market, along with being India’s very first ‘pure play’ credit card company to be listed on the stock exchanges

SBI cards and payment services are also one of the largest NBFCs in India and before you think that it's a state-owned firm because of SBI’s name being attached to it, let us tell you, IT ISN’T! 

Investment friendly factors:

  • The income for the company has grown by 31.2% in the last 5 years
  • Though their profits have declined by -20.91% in the past 1 year, the company has still had a record of generating 28.24% profit in the last 5 years
  • ROE has been a good part where the company has shown a healthy growth of 27.28% within the last 5 years

(Source: SBICARD)

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Conclusion 

NBFCs have become a cardinal component of the Indian economy by growth, especially in rural & small-scale. 

Not only this! With the supportive and growth-oriented schemes of the government like Pradhan Mantri Awas Yojana and more, the demand for NBFCs has skyrocketed. 

Speaking of the opportunities for further proliferation, the existing stress on Public Sector Banks due to a high number of bad debts can lighten up a bit if NBFCs implement and showcase the potential of their low cost, diversified, and personalized product-line clubbed with effective reach and better risk management systems. 

So what do you think about NBFCs? Do you have any suggestions on how this sector can perform even better? 

Tell us in the comment section below!

 

*Disclaimer: The stocks discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.

About the Author: Prabudh Mishra | 15 Post(s)

Prabudh Mishra is a finance and behavioral economics enthusiast. He has a sense of purpose to eliminate irrationality in human behavior while they make the most crucial financial decisions in their life.

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