Bajaj Finance shares rise 6% post RBI outcome. Why NBFC stocks will benefit more than bank stocks

Time of India

06-06-2025

Shares of India's largest NBFC,
Bajaj Finance
on Friday jumped nearly 6% to hit the day's high of Rs 9,434 on the NSE after the Reserve Bank of India (RBI) reduced the repo rate by 50 bps. The move is expected to benefit the NBFC more than the banks.
One of the reasons behind the likelihood of superior gains for NBFCs versus banks is the nature of their borrowing. Banks primarily rely on deposits (Current Account Savings Account - CASA, and term deposits) for their funding requirement, and CASA deposits are low-cost and relatively sticky. Moreover, term deposit rates also adjust, albeit with a lag. The transmission of rate cuts to deposit rates is often slower than to
market borrowing
rates, meaning banks don't see the full benefit of lower funding costs as quickly as NBFCs might.
Meanwhile, NBFCs rely heavily on market borrowings via bonds, commercial papers and bank loans for their funding. The rates on these market instruments tend to react more swiftly to changes in policy rates. When interest rates fall, NBFCs can raise funds at lower costs more immediately.
Market expert Sandip Sabharwal sees NBFCs benefitting more than the banks, concurring to the view. "...you rightly said that NBFCs tend to benefit much more in a rate cut cycle because banks have CASA deposits which are more or less fixed rates which can vary maybe a little bit here or there, but NBFCs tend to be more bulk borrowers and with lot of NBFCs having loans which are fixed rate, so a rate cut cycle typically would benefit NBFCs much more, so directionally some NBFCs like the high quality ones would outperform banks, but overall for banks also it is not bad at all," he said.
The RBI Governor, Sanjay Malhotra, today announced a 50 bps cut in the policy rate, bringing it to 5.50%. So far, the RBI has slashed the repo rate by 100 bps in three successive monetary policies.
Read More:
Bank, NBFC stocks cheer RBI's 50 bps bonanza, but are rate cuts delivering?
The rate cut is expected to increase the demand for loans though their margins may remain under pressure in the near-to-medium term.
'The big rate cut will impact bank margins in the near term. However, the credit growth that this rate cut will hopefully stimulate will compensate for the dip in margins,' said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
But Governor Malhotra's Rs 2.5 lakh crore helpline of a 100 bps cut in the Cash Reserve Ratio (CRR) has turned the tide for lenders.
The RBI's move to reduce CRR starting September 6, 2025, is expected to inject Rs 2.5 lakh crore into the banking system. Analysts say this will significantly improve system liquidity and offset the NIM squeeze caused by falling lending rates.
'This move is likely to enhance liquidity in the system, making borrowing cheaper and encouraging companies to pursue capital expenditure,' said Divam Sharma, Founder of Green Portfolio PMS. 'With FPI inflows slowing down, this infusion of liquidity is a timely and welcome move.'
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