As a stock market investor, you must come across the wealth creation stories of NBFCs like Bajaj Finance and Muthoot Finance many times. These NBFC stocks have multiplied the wealth of patient investors by several times to generate massive returns.
Bajaj Finance share price history
Muthoot Finance share price history
In this article let’s take a detailed look at:
- What are NBFCs?
- What is the difference between a bank and NBFC?
- Top NBFC stocks in India
What are NBFCs?
Nonbank financial companies (NBFCs) are financial institutions registered under the Companies Act of 1956 and offer various financial services but do not have a banking license. NBFCs provide a variety of services such as microfinance, distribution of insurance, personal loans, vehicle loans, chit fund services, gold loans, mortgage lending, etc.
By supporting the diverse financial needs of retail customers including those without access to banking channels of credit, NBFCs play a major role in promoting inclusive growth in the country.
According to RBI rules, NBFCs are allowed to accept/renew deposits from the public for a duration of 12 to 60 months that are not repayable on demand. Also, such deposits collected by NBFCs are not guaranteed by RBI.
What is the difference between a bank and NBFC?
While both Banks and NBFCs accept deposits, bank deposits are not rated by rating agencies whereas NBFC deposits are rated by rating agencies. Bank deposits up to Rs. 5 lakhs are covered by Deposit Insurance and Credit Guarantee Corporation of India in case of default. On the other hand, NBFC deposits do not have any such insurance coverage in case of default. Generally, NBFC deposits offer a higher rate of interest on deposits as compared to banks but the risk is also higher.
Banks cater to both corporate and retail customers whereas NBFCs mostly focus on the retail segment.
Top NBFC stocks in India
Formerly Known as Bajaj Auto Finance Ltd, Bajaj Finance Ltd is India\’s leading NBFC headquartered in Pune. Apart from the fixed deposit and advisory services, the NBFC offers a variety of loans including consumer durable loans, personal loans, loans against property, business loans, home loans, vehicle loans, construction equipment loans, loans against securities, gold loans, and vehicle refinancing loans.
Headquartered in Kerala, Muthoot Finance Limited is India’s largest gold financing company in terms of loan portfolio. Muthoot Finance provides loans secured with gold jewellery for personal use and business needs to individuals looking to meet short-term liquidity requirements. The company has several subsidiaries including Muthoot Insurance Brokers engaged in the business of distribution of both life and non-life insurance products of various insurance companies, Muthoot Homefin, a housing finance and microfinance company, Belstar Investment and Finance Private Limited.
Shriram Transport Finance Company Ltd.
Incorporated in the year 1978, Shriram Transport Finance Company Ltd. is the largest player in commercial vehicle finance in India with a pan-India presence. Shriram Transport Finance Company is also the market leader in financing of pre-owned trucks and offers a variety of products including financing for commercial vehicles, loans for accidental repair, loans for tyres, and finance for working capital finance, etc.
Incorporated in the year 1986, Indian Railway Finance Corporation Limited (IRFC) is the dedicated market borrowing arm of the Indian Railways. The company’s core business involves financing the acquisition of rolling stock assets such as wagons, locomotives, trollies, coaches, etc. for developing railway infrastructure assets and national projects of the Government of India as well as lending to other entities under the Ministry of Railways. IRFC has played a major role in enhancing the capacity of Indian Railways over the last 3 decades by financing a proportion of its annual plan outlay.
L&T Finance Holdings Ltd.
Incorporated in the year 2008, L&T Finance Holdings is a financial holding company promoted by Larsen & Toubro Ltd. (L&T), a giant conglomerate with business interests spread across engineering construction, IT, and financial services.
The company along with its 11 subsidiaries offers a wide range of financial products and services to both rural and urban customers such as different types of loans, as well as mutual fund products, and wealth management services.
The company’s wholesale finance business includes finance for infrastructure, structured corporate finance, and supply chain finance as well as debt capital markets services while its housing finance offerings include home loans, real estate loans, and loans secured against property.
A part of the Mahindra Group, Mahindra & Mahindra Financial Services Limited (MMFSL) is a leading player in the financing business for new and used auto, commercial vehicles, tractors and utility vehicles.
Mahindra & Mahindra Financial Services along with its subsidiaries caters mainly to customers in rural and semi-urban areas and also offers a variety of loans, insurance, and mutual fund distribution services.
Manappuram Finance Ltd.
Formerly known as Manappuram General Finance and Leasing Ltd, Manappuram Finance Limited is the 2nd largest player in the gold loan segment with a pan-India presence of 4199 branches in 24 states and 4 union territories. Apart from gold loans, the company also offers loans for vehicles, tractors, and foreign exchange services.
Incorporated in the year 1978, Magma Fincorp Ltd is a leading NBFC headquartered in Kolkata. Along with its subsidiaries, Magma Fincorp offers a variety of services such as loans for equipment, vehicles, and housing as well as SME loans and insurance products.
Disclaimer: Stocks mentioned in the above list are only for information and should not be considered as a investment recommendation.
NBFCs play the vital role of providing easy access to credit to those who need it the most or those without proper access to formal channels of access. At the same time, proper due diligence and effective use of technology have helped most NBFCs to maintain their asset quality. Over the next 2 decades, there are likely to be many outperformers from this sector.
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