There is a huge number of Non-Banking Finance Companies (NBFCs) operating in our country. Many of them are listed in National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). This article explains as to how the listing of NBFCs has happened in Exchanges in recent times.
While in 2012, NBFCs did exceptionally well; the year 2013 saw more than 30 NBFC stocks listed on the BSE and beating the Sensex, which rose 25 percent during the year. Stocks of nearly 20 NBFCs had more than doubled during this period.
The reasons for the rally were the buzz that some NBFCs might get bank licenses and the proposal to increase the cap on loans NBFCs could give against pledged gold.
The list of contenders for bank licenses included some top NBFCs. Stocks of NBFCs that were expected to apply for bank licenses rose in the last quarter of 2012 after Parliament passed the Banking Bill.
Then, on January 2, 2013, a committee appointed by the Reserve Bank of India, on gold loan companies proposed an increase in the loan-to-value, or LTV, a ratio for gold loans offered by NBFCs from 60 percent to 75 percent. The ratio measures how many loans the lender can give compared to the value of the pledged asset. This boosted shares of NBFCs that give gold loans.
Experts had predicted that the year, 2013, would be positive for those who would invest in NBFCs due to the expected easing of regulations and fall in interest rates.
“NBFCs, particularly with a retail focus, had reported healthy profits with steady asset quality. Valuations were boosted by clearance to the banking Bill, which paved the way for new bank licenses that some NBFCs expected to get,”
-Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd).
The beginning of 2016 also contributed to the listing. Around 18 NBFCs announced their earning figures for the quarter ended March 2016. On an average, they reported nearly 15 percent year-on-year growth in net profit figures.
Sharekhan in April 2016 projected that NBFCs might report healthy growth in profits driven by healthy growth. On the valuation front, Sharekhan said, in its research note, that the risk-return scenario seemed favorable in private banks and NBFCs due to much better capital ratios, growth in the retail segment and higher provision coverage versus that of public sector banks.
On an average, NBFC stocks gave a return of 3 percent during April 1 and May 5, 2016. On the other hand, benchmark index BSE Sensex slid marginally 0.03 percent during the same period.
Most NBFC traded higher on Dalal Street with shares of some NBFCs surging nearly 36 percent since the beginning of the financial year 2016 till May 4. Some Other NBFC majors gained between 11- 25 percent during the period.
NBFCs with high net worth are now able to access capital markets to raise funds as the government, in its Budget proposal of 1 February 2017, allowed them to list their stocks with the exchanges. This has brought such NBFCs at par with their financial market peers, banks, and insurance companies.
“As the Budget proposed that high net worth NBFCs can also participate in Initial Public Offerings (IPOs), like banks and insurance companies, this strengthened the IPO market and channelized more investments.”
— Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.).
Along with this, the government has introduced a common application form for registration, opening of bank and demand accounts, and issue PAN for Foreign Portfolio Investors (FPIs).
Regulators – SEBI and RBI along with the Central Board of Direct Taxes (CBDT) – were entrusted with the responsibility of jointly putting in place the necessary mechanisms and procedures. This has greatly enhanced the operational flexibility and ease of access of the NBFCs to Indian capital markets.
—Shweta Gupta, Founder, and CEO, MUDS