I. Introduction
Are you looking for the best small finance bank in India? Read this to find the top 5 small finance bank stocks in India that you can consider investing in.
An overview of small finance banks in India
Before we discuss the best small finance bank shares in India, let’s learn about the best small finance banks in India. The Reserve Bank of India, or RBI, established small finance banks as a specialized banking segment to strengthen the Indian economy and promote financial inclusion.
The importance of investing in small finance bank shares
Small finance bank shares investments have a significant contribution to make toward financial inclusion and socio-economic development. Therefore, when investors invest in these small finance bank stocks they get the opportunity to contribute to the bigger cause of financial inclusion and socio-economic development of the country.
II. Criteria for selecting top small finance bank shares
Investing in small finance bank stocks can bring numerous benefits. However, one should consider the following factors to make an informed decision when investing in such stocks in India.
Financial performance
The first and most important selection criteria for top small finance bank shares is financial performance. The financial performance of a small financial bank indicates its ability to offer returns. If a small finance bank stock has a good financial performance record, it can offer stable returns.
Market position
Another essential factor you should consider while selecting top small finance bank shares is market position. A higher market position indicates that the small finance bank shares has greater prospects for both future growth and the ability to offer good returns.
Growth potential
Growth potential is another major factor to consider while selecting stocks from the best small finance bank in India. You can compare small finance banks with regular banks and post offices to determine their growth potential in the investment market and whether you should invest in them or not.
Management efficiency
Considering management efficiency is also important when selecting a small finance bank shares for investment. Compare different small finance bank’s management efficiency whether in terms of adhering to the laws and regulations or offering essential customer satisfaction. Usually choosing a small finance bank with strong management skills with greater efficiency is considered a safe investment option.
Dividend history
Last but not least, dividend payout history is another crucial factor that one should consider while selecting small finance bank shares in India. You can compare various small finance banks based on their history of dividend payout capabilities and select a bank that has a good history of dividend payouts. Usually, small finance banks with significant dividend payout history indicate higher returns for your investment too.
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II. Top 5 small finance bank shares in India
If you are looking for the best small finance bank in India for investment, you must know about the top small finance bank stocks in India. Here are the top 5 small finance bank stocks that you can invest in.
A. AU Small Finance Bank
AU Small Finance Bank is one of the best Indian small finance banks that you can consider investing in.
Overview
AU Small Finance Bank was established in 1996. It focuses on serving underbanked and unbanked areas of the country. It offers comprehensive banking services including ATMs, EMI calculators, interest calculators, fixed deposits, current accounts, and more.
Key financial metrics
● Market capitalization: Rs 53,456.61 CR
● CASA: 33.40 (as of March 2024)
● Net interest margin: 4.71
● Cost to income: 64.67
Growth prospects
As of 31st December 2022 AU Small Finance Bank had 1015 Touchpoints across 21 States and 3 Union Territories. AU Small Finance Bank provides various products such as Savings Accounts, Current Accounts, Fixed Deposit, Recurring Deposit, ATM, Vehicle Finance, SME and MSME loans.
B. Ujjivan Small Finance Bank
Another top small finance bank that you can choose to invest in is Ujjivan Small Finance Bank.
Overview
Ujjivan Small Finance Bank began its operation in 2005 as a non-banking financial company or NBFC. This small finance bank offers a wide range of banking services to the ‘economically active poor’ community.
Key financial metrics
Market capitalization: Rs 7, 822 CR
CASA: 26.69
Net interest margin: 8.43
Cost to income: 54.31
Growth prospects
Ujjivan SFB aims to be a socially responsible, environmentally conscious company, which balances financial performance. The bank’s sustainability approach serves as its strategy and action to ensure its operations conform with ESG trends, regulatory needs and stakeholder expectations.
C. Equitas Small Finance Bank
Equitas Small Finance Bank is also one of the top small finance bank shares in India for investment.
Overview
Equitas Small Finance Bank originally started its operation as a VAP Finance Private Limited on 21 June 1993. Later in 2007, it became a public limited company.
Key financial metrics
Market capitalization: Rs 8,566 CR
CASA: 31.97
Net interest margin: 6.79
Cost to income: 64.48
Growth prospects
Equitas Small Finance Bank showcases a strong growth history with a loan book of 26% CAGR rate and deposits of 38% CAGR in FY22–FY24. This small bank also displays significant growth in other segments.
D. Jana Small Finance Bank
Another top small finance bank shares to consider is Jana Small Finance Bank.
Overview
Jana Small Finance Bank is a relatively new small finance bank that started its operation in 2018. The bank currently operates with 771 branches across 22 cities of the country which includes 278 outlets in unbanked rural areas of India.
Key financial metrics
Market capitalization: Rs 5,797 CR
CASA: 19.70
Net interest margin: 6.50
Cost to income: 57.35
Growth prospects
Jana Small Finance Bank has reported a massive growth in their 2023–24 quarter report. The SFB is now aiming for a 20% deposit growth in FY25.
E. Suryoday Small Finance Bank
Lastly, E. Suryoday Small Finance Bank is also a reputed SFB that you can consider investing in.
Overview
E. Suryoday Small Finance Bank was established on 10 November 2008. This small finance bank is known for its significant role as a financial intimidator in the Indian banking sector. It offers a wide range of banking products and services to both unbanked and underbanked areas of India.
Key financial metrics
Market capitalization: 18,22.14 CR.
CASA: 20.13
Net interest margin: 7.77
Cost to income: 61.58
Growth prospects
According to the Wall Street Analysis report, E. Suryoday Small Finance Bank has witnessed a stock price rise in the last 12 months. The average 1-year stock price target of E. Suryoday Small Finance Bank is Rs 278.46.
IV. Risks and considerations
Understanding the risks and considerations involved in small finance bank investment is as important as finding the best small financial bank in India. Here are some risks one should be aware of before investing in such shares:
Market volatility
Market volatility is a crucial point to consider when investing in small finance bank’s shares. Market volatility can create a significant impact on small finance banks in India. An investor should track a small finance bank’s book value, market cap and other financial metrics to understand how it would deal with market volatility.
Regulatory changes
Regulatory changes also impact small finance banks like other industries in India. Always keep yourself updated on the regulatory changes related to small finance bank shares and companies. If there is an unfavorable change in related regulations, it can negatively impact small finance banks’ shares.
Economic factors
An investor should also consider the financial factors of a small finance bank such as capital adequacy, debt ratio and market capital to understand the financial health of the organization. They should also be aware of the economic trends in the country and how they can affect the small finance banks’ shares.
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V. Conclusion
Investing in small finance bank stocks can be a great way to profit and also participate in the greater goal of contributing to a country’s financial inclusion and socio-economic development. Above, we have discussed the top 5 small finance bank stocks in India that you can consider investing in.
To conclude, investing in small finance bank stocks can be quite beneficial for any investor whether they are a newbie or seasoned investor. However, you must follow essential selection criteria such as dividend payout history, management efficiency, growth potential, etc. Also, learning about the associated risks and taking crucial steps to mitigate the risks will help ensure a successful investment.
FAQs
1. Which small finance bank share is best to buy?
A. In the article above, we have listed 5 best small finance banks in India that you can consider buying into. However, you must choose a stock that suits your financial and trading goals.
2. Which is the No. 1 small finance bank?
A. Any answer we give you today may not hold tomorrow. That said, at press time, AU Small Finance Bank, Equitas Small Finance Bank, and Ujjivan Small Finance Bank are some of the popular SFBs in India. Read the article above to know more about them.
3. Which small finance bank is best for a long-term investment?
A. Experts consider Suryoday Small Finance Bank, Equitas Small Finance Bank, and Ujjivan Small Finance Bank as some best options for purchasing long-term SFB shares in India.
