Lending to the bottom of pyramid: 4 small finance banks with upside scope of up to 36%

It might surprise many of you, ask your driver, your help at home, or the small chai shop owner how much interest he pays when he or she takes an unsecured loan taken in the private loan market. He or she might be paying four to five times more than the interest rate which any regular bank charges on an unsecured loan. That is what led to the birth of microfinance companies, now many of them are small finance banks. They are providing lending at the lowest end of the pyramid. Their interest rates were higher than normal banks would charge, but would surely much lower than what private money lenders in these parts of the country charges. That is where the opportunities are present for these small finance banks. After a phase of tough regulatory challenges, they have emerged stronger.

For Dalal Street, paints means Asian Paints. However, there is and sooner there will be even more to it.

The recent RBI guidelines on tightening the normal for provision for unsecured lending, bring back the debate to whether from a long term perspective, it is better to own a good housing finance stocks as it largely secured portfolio or should be stick to unsecured lenders who have faster growth rate. Despite all the ills of the real estate and housing finance business, one of the biggest wealth creators in the history of the Indian stock market has been a housing finance company, erstwhile HDFC which now merged with HDFC bank. So, it is a business which is good to own but what you choose to own matters most.

One more reason why the auto index is important to look at is the fact that while it is not an absolutely correct substitute for the transportation index available in some western countries, an auto index is something which can give an advance indication of how things are happening on ground in the economy.

FD interest rates in March 2024: Senior citizens are offered a higher rate of interest rate on FDs compared to those offered on general citizen FDs. Here's a look at small finance banks that provide higher interest rates on senior citizen fixed deposits.

While it's commonly thought that auto and FMCG companies are prime indicators of the rural economy's health due to their direct consumer engagement, small finance banks (SFBs) may actually provide a clearer picture of the rural and semi-urban economic landscape. This clarity comes from their operational focus on these less urbanized areas and their direct involvement in lending to local businesses. Despite facing various challenges, SFBs have seen growth, driven largely by the unmet demand for capital at reasonable interest rates in rural areas. They offer credit to the bottom of the pyramid, at more favorable rates compared to traditional options which were available till a few years back, filling a critical gap.

After facing rising input costs and supply chain disruption, the Macro environment in which auto ancillaries companies operate have turned favourable after a long period of time. Sometimes it is LCV and HCV which drives the demand, at other point time, better four and two wheeler numbers are pushing the demand up for auto ancillary companies, some of which are changing their business model to stay relevant in times of EV. We take a look at companies where analysts are projecting further upside in the next 12 months. The list is based on upside estimated by the analysts, with the highest potential stock coming on the top of the list.

Finance companies are expected to moderate loan disbursals following the banking regulator's recent restrictions on high-margin but potentially risky business lines such as gold loans and securities financing. The Reserve Bank of India (RBI) recently ordered curbs on IIFL Finance's gold loans and JM Financial Products' financing of bonds and stocks. This regulatory action is likely to make banks more conservative in lending to non-bank financiers, leading to concerns about liquidity for onward lending. The RBI's moves are aimed at curbing unethical practices and systemic risks in the financial sector, although they may temporarily impact credit expansion.