INSUBCONTINENT EXCLUSIVE:
A crucial difference between an NBFC and a bank is the ability to raise deposits.As far as credit is concerned, India lags its western
that needs to be done to expand the country's credit base
role in India's credit ecosystem
quite similarly as far as credit creation is concerned
India, NBFCs have become important constituents of the financial sector
Over the last decade, they have experienced phenomenal growth
the Reserve Bank of India (RBI)
and commercial customers across urban and rural areas
investments in financial securities
HDFC is a major stakeholder in the HDFC group of companies having presence across different sectors such as banking, insurance, asset
Asset Management, HDFC Ergo, and all other subsidiary and associate companies at the original cost of acquisition.These investments are
currently not accounted for on a fair value basis in the books of accounts.The unrealised gain of Rs 2.6 lakh crore on the investments are
not part of HDFC's current net worth nor its capital adequacy calculation.AdvancesBajaj Finance's advances grew at a CAGR of 35.6% over the
This is due to the fact that HDFC focuses exclusively on mortgages whereas Bajaj Finance has a diversified lending portfolio (including
However, its consumer finance and housing finance verticals continue to be key business drivers
The company offers a no cost EMI scheme to its retail customers, making it convenient for them to pay for their purchases.The consumer
fray in 2017 via BHFL, its wholly owned subsidiary
Since then, the vertical has grown phenomenally
India's real estate market was going through a rough patch
Despite sluggish overall demand, HDFC clocked positive double-digit growth during the period which is nothing short of an achievement and
non-convertible debenture (NCDs), or diluting equity via qualified institutional placement (QIP) route.Last but not least are
allowed to accept demand deposits (regular deposits)
NBFCs are constrained to accept time deposits only
of funds for NBFCs followed by NCDs and QIP
generated from core operations
NII is the difference between the interest income earned by an NBFC on its loans and the interest it pays on its borrowings.Though rising
interest income reflects growth and is important to look at, what is more important is to keep an eye on is interest expense
trickled down to 21% in fiscal 2021 from 36% in fiscal 2017
During the same period, Bajaj Finance's interest expense to income ratio dropped 300 basis points or 3% from 38.7% in fiscal 2017 to 35.7%
optimization efforts of these companies that makes them command a leadership position in the industry.Net Interest Margins (NIM)Net interest
margin (NIM) is net interest income divided by the total amount of loan disbursed by a bank.NIM is one of the measures of profitability
average NIM for the last five years turns out to be around 11%
and low yielding assets whereas it is 24% for banks
concerned, there's no risk above NPAs
financial industry, HDFC and Bajaj Finance have a strong risk management framework at play
NPA levels are among the lowest in the industry.Bajaj Finance's average NPA for the last five years stood at 0.62 versus HDFC's average of
ability to tide over rising inflation and interest rate cycles without additional NPA provision costs on its books.ProvisionsProvision is a
prudence through their provision allocation strategy
These companies are proactive with provisions and provide for the losses well in advance
16.5% over the last five years
an average dividend of Rs 19.4 per share over the last five years
It paid an average dividend of Rs 6.5 over the last five years
The company sells its products and services via physical points of sale present
HSPL has a physical network of 206 offices across the country
distribution tie ups with commercial banks, small finance banks, other NBFC's, and housing e-portals
with regards to different parameters
When comparing banks or NBFCs, analysts look at two return ratios to see which of the two is more efficient and generates more
It is expressed in terms of percentage.ROA tells an investor how much profit a company generates on its assets.Add image caption hereThe
five year average ROE of HDFC and Bajaj Finance is 15.2% and 16.8%, respectively
front too with average ROA of 2.9% over the last five years
2021 were a complete washout as these companies reported a sharp drop in their business
the digitisation efforts of these companies
HDFC and Bajaj Finance strengthened their digital infrastructure to strengthen its customer engagement, collection process, and product
RBI slashed the repo rate to stimulate economic growth
This was clearly visible in quarterly results of HDFC and Bajaj Finance
unprecedented challenges posed by the pandemic, then they can overcome any adversity going forward
As per some estimates, the Indian real estate sector is expected to reach $1 trillion by 2030 from the current market size of $200
there's a lot of headroom for growth
by the data points discussed above, Bajaj Finance emerges as the winner
In a sector which is so closely linked to the macro environment, its ability to manoeuvre through market cycles with exceptional capital
allocation sets it apart from all other NBFCs.Investors have lofty expectations from Bajaj Finance which is reflected in its high valuations
The stock is trading at a price to earnings (P/E) multiple of 80.5
expensive valuation than HDFC
Before choosing a company to invest in, it is important to check its fundamentals and valuations to help make an informed decision.(This
article is syndicated from Equitymaster.com)(This story has not been edited by TheIndianSubcontinent staff and is auto-generated from a
