Top 5 NBFC Stocks in India

​​Retail banking in India is a massive domain that provides services from deposits to loans and everything in between. However, there is a specific sector that provides 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 fulfil. It's a ‘Superhero to the rescue’ sort of 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 functions similar to those of 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 chequebook 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 to pay or transfer 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 21.9% CAGR in the past 5 years
• Profit growth of 26.58% CAGR in the past 5 years
• Promoter shareholding of 54.69%

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 loans, vehicle loans, foreign exchange services, etc.

Investment friendly factors: 

• Robust income growth of 10.91% CAGR over the past 5 years
• Remarkable profit growth of 14.34% CAGR over 5 years
• Promoter shareholding of 73.35%

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 that has been placed under the administrative control of the Ministry of Power.

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

It also provides financial services such as fund-based policies/ products and non-fund-based policies/ products.

Investment friendly factors: 

• Impressive PAT margin of 29.27% clubbed with profit growth of 21.48% CAGR in the past 5 years 
• The compounded growth rate of operating income by 8.83% CAGR over the past 5 years
• Promoters's shareholding of 55.99%

4. LIC Housing Finance Ltd.

LIC Housing Finance Ltd (LIC HFL), subsidiary of Life Insurance Corporation of India (LIC), is one of the biggest housing finance companies in India. It primarily provides a variety of home loan options with different interest rates, tenures, and eligibility criteria.

LIC Housing Finance Ltd. caters to to various customer segments such as salaried individuals, self-employed individuals, non-resident Indians (NRIs), pensioners.

Investment friendly factors:

• Strong operating income growth of 8.84% CAGR over the past 5 years
• Whopping 26.88% growth in profit in 1 year and sustainable profit growth of 7.63% over the past 5 years
• A healthy Return on the Equity track record of 13.06% for 5 years

5. L&T Finance Ltd.

L&T Finance Ltd. is a leading NBFC in India, offering a wide range of financial products and services to individuals and businesses. It is a subsidiary of Larsen & Toubro (L&T), a major Indian technology, engineering, and construction conglomerate.

L&T Finance Ltd. operates through four main business segments such as retail, wholesale, defocused, and others.

Investment friendly factors:

• The income for the company has grown by 94.95% in the last 5 years
• Their profits are 19.08% in the past 1 year, while the company has had a record of generating 53.64% profit in the last 5 years
• ROE has been a good part where the company has shown a healthy growth of 5.79% within the last 5 years

Want to know more about NBFC stocks & how to pick the next multi-bagger? Yeah! Check out this resourceful course at Finology Quest - How to pick NBFC stocks?

Quest is your ticket to financial freedom. It is a learning platform by Finology that offers you a variety of courses related to finance and investing. After subscribing to Finology One, you can watch or read any course. Quest will make you financially aware and will show you a path towards wealth creation.

The Bottom Line

NBFCs have become a cardinal component of the Indian economy by growth, especially on rural & small scale. 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 and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.