Supported by a favorable interest rate cycle, improving credit trends, and regulatory green lights, NBFCs have surged ahead of their banking counterparts and are emerging as the most exciting story in the sector this year.
At the heart of this rally is the Reserve Bank of India’s surprise 50-basis-point repo rate cut on June 6, 2025—a bold move aimed at boosting economic momentum. But more than banks, it’s NBFCs that are positioned to gain the most.
“NBFCs benefit more in a significant easing cycle than banks,” says market expert Sandip Sabharwal, highlighting that their greater reliance on bulk borrowings leads to faster transmission of lower rates into improved profitability.
The transmission effect is particularly strong for NBFCs with high bank borrowing exposure and a larger fixed-rate loan book—categories that include gold and vehicle financiers. According to Emkay Global, this combination sets them up for lower funding costs and a boost to net interest margins (NIMs) in the coming quarters.
“The RBI’s actions signal satisfaction with the system’s stability and a supportive stance toward NBFC growth,” Emkay noted. “As stress in unsecured loans eases and funding costs decline, NBFCs are set for risk-calibrated profitable growth.”Even amid competitive pressures in secured lending, firms with a high fixed-rate portfolio—like Shriram Housing Finance (SHFL) and Mahindra & Mahindra Financial Services (MMFS)—are expected to benefit from lower borrowing costs, according to JM Financial. However, yields will need to hold up to sustain margin gains.
NBFCs Outpace Banks
On the surface, 2025 has been a good year for banks. The Bank Nifty has climbed 12%, comfortably ahead of the Nifty 50’s 7% return. Within the Bank Nifty, seven bank stocks have delivered double-digit gains, reflecting bullish sentiment. However, when you take a broader view, the NBFC rally stands out even more.
Around 10 prominent NBFC stocks have surged between 25% and 55% so far in 2025, far outpacing most bank stocks. Among the standout performers are Aditya Birla Capital, L&T Finance, and Poonawalla Fincorp—each of which has seen its share price rise over 50% year-to-date, driven by a mix of improving asset quality, scalable business models, and more optimistic investor sentiment following the RBI’s dovish turn.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
