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Non-Banking Financial Companies (NBFCs) Outshine Banks in Deposit Growth

09 October 20243 mins read by Angel One
According to RBI data, non-bank lenders in India expanded their deposit base by 21% in FY24, outpacing banks' 13.5% growth.
Non-Banking Financial Companies (NBFCs) Outshine Banks in Deposit Growth
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Non-Banking Financial Companies (NBFCs) have demonstrated a remarkable ability to attract deposits, surpassing traditional banks in recent years. According to the Reserve Bank of India (RBI), NBFCs collectively achieved a 21% increase in deposits during the financial year 2024 (FY24), while banks struggled with a more modest 13.5% year-on-year (YoY) growth.

The allure of NBFCs lies in their competitive interest rates. Major NBFCs like Bajaj Finance and Shriram Finance offer approximately 150 basis points more than banks, making them attractive options for savers seeking higher returns. Some NBFCs, such as Indiabulls Housing and Nido Home Finance, even provide even more lucrative rates.

In contrast, the fixed deposit rates of five large banks for a one-year tenure remained relatively stagnant, ranging between 6% and 7.25%.

The RBI’s Handbook of Statistics on the Indian Economy reveals that the aggregate public deposits of NBFCs reached Rs 1.03 lakh crore at the end of March 2024, a significant 20.8% jump compared to the previous year. This consistent growth trend, observed for both FY23 and FY24, highlights the increasing preference for NBFCs as a deposit avenue.

Banks, on the other hand, witnessed a more subdued deposit growth of 9.6% in FY23.

Bajaj Finance and Shriram Finance emerged as prominent players in the NBFC space, reporting substantial deposit growth. Bajaj Finance’s deposits grew by 35% YoY to Rs 60,151 crore, contributing a significant portion of the company’s consolidated borrowing. Shriram Finance also experienced a robust 23% YoY increase in deposits, reaching ₹44,444 crore.

However, the RBI has exercised caution in regulating the deposit-taking activities of NBFCs. The number of NBFCs allowed to accept public deposits was reduced to 25 in FY24 from 34 in the previous year. This decision reflects the regulator’s concern about the differing regulatory standards between banks and NBFCs.

Top central bankers believe that even the more calibrated regulations for higher-tier NBFCs do not fully align with those of banks. To mitigate risks, NBFCs with a minimum investment-grade rating of “BBB-” are permitted to raise public deposits for a minimum of 12 months and a maximum of 60 months. Additionally, they are prohibited from offering demand deposits like current and savings accounts.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

 

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