Bajaj Finance and 9 Other Stocks Surge Up to 7% as RBI Restores NBFC Lending Norms
Bajaj Finance and 9 Other Stocks Surge : The Indian stock market witnessed a sharp rally in non-banking financial companies (NBFCs) and small finance banks after the Reserve Bank of India (RBI) rolled back its decision to increase risk weights on bank loans to NBFCs. This move, effective from April 1, 2025, is expected to free up capital for banks, leading to improved lending capacity and overall financial stability.
Investors reacted positively, pushing stocks of Bajaj Finance, AU Small Finance Bank, RBL Bank, and others up to 7% in a single session.
RBI’s Policy Reversal: A Major Boost for NBFCs
In November 2023, the RBI raised risk weights on bank loans to NBFCs by 25 percentage points if the original risk weight was below 100%. This move made loans to AAA-, AA-, and A-rated NBFCs more capital-intensive for banks, leading to a significant slowdown in bank lending to the sector.
By December 2024, the growth rate of loans to NBFCs had dropped to 6.7% year-on-year, compared to 15% a year earlier. Consequently, overall bank credit growth also declined from 20% to 11.2%.
Realizing the impact, the RBI reversed its decision, restoring risk weights to 100% for bank loans to NBFCs. This move reduces capital requirements for banks, enabling them to lend more freely to the NBFC sector.
Stock Market Reaction: NBFCs and Small Finance Banks Surge
Following the RBI’s announcement, several NBFC and small finance bank (SFB) stocks witnessed a sharp rally. The list of top gainers includes:
| Stock Name | Market Cap (₹ Crore) | Current Price (₹) | % Change |
|---|---|---|---|
| Suryoday Small Finance Bank Ltd | 1,238.22 | 116.50 | +6% |
| Ujjivan Small Finance Bank Ltd | 6,313.20 | 32.63 | +3.42% |
| AU Small Finance Bank Ltd | 41,239.21 | 554.00 | +7% |
| Utkarsh Small Finance Bank Ltd | 2,812.41 | 25.53 | +7% |
| Jana Small Finance Bank Ltd | 4,396.75 | 416.00 | +3% |
| Equitas Small Finance Bank Ltd | 6,717.63 | 58.94 | +5% |
| RBL Bank Ltd | 9,892.89 | 162.75 | +7% |
| Cholamandalam Investment & Finance Ltd | 30,603.03 | 1,629.75 | +6% |
| Bajaj Finance Ltd | 5,39,000 | 8,695.50 | +3% |
| Muthoot Finance Ltd | 88,442.50 | 2,203.00 | +0.87% |
Why This Move is a Game-Changer for NBFCs and Banks
1. Improved Liquidity for NBFCs
With lower capital requirements, banks can now extend more credit to NBFCs. This enhances liquidity, allowing NBFCs to expand lending operations.
2. Strengthening Small Finance Banks
Smaller banks, including AU Small Finance Bank, Utkarsh Small Finance Bank, and RBL Bank, benefited significantly. Their stock prices surged as lower risk weights reduce capital strain, enabling them to offer more loans at competitive rates.
3. Positive Outlook for Banking Sector
India’s banking sector has been resilient, with gross NPAs hitting a 12-year low of 2.6% as of September 2024. With profit after tax growing 22.2% year-on-year in H1 FY25, the lending boost could further strengthen earnings and loan book growth.
4. Revival in Credit Growth
With credit growth slowing down to 11.2% in December 2024, the RBI’s decision is expected to reignite loan growth and push banking sector expansion.
Conclusion: A Bullish Future for NBFCs and Banks
The RBI’s restoration of NBFC lending norms comes as a huge relief for both banks and NBFCs. Investors have responded with strong buying interest, evident from the sharp rally in financial stocks.
With a more favorable lending environment, NBFCs, small finance banks, and large lenders like Bajaj Finance are likely to witness sustained growth in the coming months.
This policy change, coupled with India’s improving banking health, makes the financial sector an attractive bet for investors in 2025.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.