NBFCs vs Banks: Who Is Gearing Up for a Bigger Breakout Post RBI Repo Rate Cut?

NBFCs vs Banks: Non-Banking Finance Sector Companies (NBFCs) and banks have become top picks for investors following the Reserve Bank of India's latest monetary policy announcement, including a 50 basis points repo rate cut.

RBI policy shift has renewed investors' interest in the financial sector stocks, like State Bank of India (SBI), Muthoot Finance, Manappuram, IDFC First Bank, Kotak Mahindra Bank, Axis Bank, Muthoot Finance, Shriram Finance, SBI Life, Kotak Mahindra Bank, etc.

NBFC or Bank: Which Sector Will Get The Maximum Boost Due To the RBI Policy?

Many NBFCs and bank stocks have rallied significantly since the RBI Governor Sanjay Malhotra's announcement on June 6. As investors evaluate the long-term implications of RBI announcements, let's understand which sector will benefit the most, the NBFC or the banking sector.

Nifty Financial Services, representing banks, NBFCs, and housing finance companies, has surged nearly 2.3% in five trading sessions. Meanwhile, Nifty Bank, which tracks the growth of selected listed banking sector stocks, has surged around 1.88% in five trading sessions.

RBI repo rate cut, along with a decline in the cash reserve ratio, is likely to benefit banks with high-yield fixed-rate products; however, NBFCs are likely to benefit more, according to Emkay Global's Head of Research and Strategist Seshadri Sen who sees Nifty at around 26,000 at the end of financial year 2025-26.

"Anand Dama, our banking analyst, expects net impact (drag from lower rates on EBR-linked loans offset by release of idle CRR funds) of about 15-20bps on banks' NIMs - limiting earnings growth to a high single digit. Also, the pain will be more front loaded as deposits reprice with a lag. A few banks-with high-yield fixed rate products like credit cards, personal loans and MFI-will benefit significantly, also helped by tapering credit costs and an expected reversal in the business cycle," noted Emkay Global in its report released on June 10.

"A few banks, with high-yield fixed rate products like credit cards, personal loans and MFI, will benefit significantly, also helped by tapering credit costs and an expected reversal in the business cycle. Meanwhile, the construct for NBFCs looks promising - they were growing fast to begin with, and the policy surprise is an added booster. We like Shriram Finance and AB Capital; the latter could see its price double in about 18-24 months," added Emkay Global in its report.

RBI MPC Announcement

RBI's MPC decided to opt for a 50 basis points rate cut for June, announced RBI Governor Sanjay Malhotra on June 6. The central bank had also announced to reduce CRR and gold loan to value rate.

"After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.50 per cent with immediate effect; consequently, the standing deposit facility (SDF) rate shall stand adjusted to 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.75 per cent," said Sanjay Malhotra.

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