Bajaj Finance and NBFC Stocks Surge as RBI Restores Lending Norms
Bajaj Finance and NBFC Stocks Surge : The Indian stock market witnessed a sharp rally in several Non-Banking Financial Company (NBFC) stocks after the Reserve Bank of India (RBI) reversed its decision to increase risk weights on bank loans to NBFCs. This move has come as a major relief for the sector, leading to a surge of up to 7% in stocks such as Bajaj Finance, AU Small Finance Bank, and RBL Bank.
RBI’s Policy Reversal: A Boost for NBFCs
In a significant regulatory shift, the RBI announced that starting April 1, 2025, the risk weight for bank loans to NBFCs would return to 100%, down from the increased 125% imposed in November 2023. This decision is expected to free up capital for banks, enhancing their lending capacity and reducing capital constraints for NBFCs.
The previous policy change had made lending to AAA-, AA-, and A-rated NBFCs more capital-intensive for banks, slowing down credit growth in the sector. Bank lending to NBFCs saw a dramatic decline, with year-on-year loan growth dropping from 15% in December 2023 to just 6.7% in December 2024. The overall bank credit growth also fell from 20% to 11.2% in the same period.
With the restoration of previous lending norms, investor sentiment towards NBFCs has improved, leading to a rally in their stock prices.
Market Reaction: NBFC Stocks Rally
Following the RBI’s announcement, multiple NBFC stocks experienced a strong uptrend. Here’s a look at the top performers:
| Stock Name | Market Capitalization (in ₹ Crore) | Latest Trading Price (in ₹ per share) | Percentage Increase |
|---|---|---|---|
| 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 Co. 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 Rally Matters?
The restoration of risk weights to 100% has multiple positive implications:
- Increased Lending Capacity: Banks can now lend more to NBFCs without requiring additional capital, enhancing liquidity in the sector.
- Lower Capital Constraints for NBFCs: Small finance banks and other NBFCs can now borrow at more favorable terms, leading to potential expansion in lending activities.
- Stronger Market Sentiment: Investors see this as a pro-growth move, making NBFC stocks more attractive in the near term.
India’s Banking Sector: A Resilient Performance
The Indian banking sector has shown resilience in recent years, backed by improved asset quality and profitability. As of September 2024, Gross Non-Performing Assets (NPAs) stood at a 12-year low of 2.6%. Additionally, Scheduled Commercial Banks (SCBs) reported a 22.2% year-on-year growth in profit after tax in H1 FY25, while deposits rose by 11.1% as of November 2024.
This robust banking performance, coupled with the RBI’s latest policy decision, is expected to drive further stability and growth in the NBFC sector.
Conclusion
The RBI’s decision to restore lending norms for NBFCs has come as a significant relief, leading to a sharp rally in stock prices. With increased liquidity, reduced capital requirements, and improved investor sentiment, NBFCs are poised for stronger growth in the coming months. As the financial sector continues to evolve, investors will be keenly watching how these changes impact credit growth and market dynamics.
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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.