Top Small Finance Bank Stocks in India Today

by Alina Khan

Published On Nov. 4, 2023

In this article

The Indian economy is witnessing a remarkable transformation, driven by a unique group of institutions with a significant impact on the future – small finance banks. These banks have a distinctive mission: to bridge the gaps in under-served areas, build personal connections with customers, and embrace digital innovation.

By offering accessible banking services to individuals and businesses, small finance banks are propelling economic growth and nurturing financial inclusion. With their customer-centric approach and advanced technology, they are setting new standards, inspiring change, and reshaping the future of banking in India. Let's delve into the top small finance bank stocks in India and meet the pioneers of this evolving industry.

What are Small Finance Bank Stocks?

Small finance bank stocks represent shares in financial institutions with a specific focus – catering to underserved and unbanked segments of society. These banks, unlike traditional commercial banks, are designed to provide essential banking services such as accepting deposits and lending. Their customers often include small business units, small and marginal farmers, micro and small enterprises, and individuals without access to formal banking services.

The primary goal of small finance banks is to promote financial inclusion by extending fundamental banking services like deposits and credit facilities across the nation. They emerged as a result of the Indian government's commitment to boost financial inclusion in underprivileged areas. In 2015, the government introduced licensing guidelines to encourage the establishment of small finance banks, prioritizing the underserved population's access to banking services. These banks were granted certain relaxations, such as reduced reserve requirements, allowing them to be more flexible and serve regions and sectors in need.

Best Small Finance Bank Stocks in India 2023

India's banking sector is witnessing a transformation, and at the forefront of this revolution are the small finance banks. These dynamic institutions are reshaping the financial landscape, focusing on serving the underprivileged and underserved sections of society. Here's a closer look at some of the top small finance bank stocks making waves in the Indian banking sector:

1. AU Small Finance Bank:

  • Inception: AU Small Finance Bank embarked on its journey as a vehicle finance company in 1996 under the name 'AU Financiers Ltd.' However, it transformed into a small finance bank on April 19, 2017.

  • Growth and Stability: This bank has exhibited remarkable growth in advances and net interest margin. Moreover, it maintains strong financial ratings, a testament to its stability and strength in the Indian banking sector.

2. Equitas Small Finance Bank:

  • Regulatory Approval: Equitas Small Finance Bank received the approval of the Reserve Bank of India (RBI) to operate as a small finance bank in 2016.

  • Evolution: Initially incorporated as V.A.P. Finance Private Limited in 1993, it successfully merged with its parent company, Equitas Holdings, paving the way for its transition into a small finance bank.

  • Community-Based Lending: One of its distinguishing features is its focus on community-based lending, and it boasts a predominantly female borrower base.

3. Ujjivan Small Finance Bank:

  • Diverse Revenue Streams: It offers a wide range of products and revenue segments, including interest and discounts on advances and bills, income from investments, and interest on balances with RBI and other inter-bank funds.

  • Financial Strength: A notable achievement for this bank is its report of zero non-performing assets (NPAs), indicating robust financial health.

4. Suryoday Small Finance Bank:

  • Transformation: Suryoday Small Finance Bank, located in Mumbai, underwent a transformation from a microfinance institution in 2017.

  • Steady Growth: The bank has reported consistent financial performance, with advances and annual revenue on the rise.

  • Diversification: A key strategy for growth has been its focus on expanding its branch network and diversifying its loan portfolio, which has played a pivotal role in its success.

Why Invest in Small Finance Bank Stocks?

Investing in small finance bank stocks offers several compelling advantages:

  • Financial Inclusion: Small finance banks play a pivotal role in extending banking services to underserved and unbanked segments of the population, contributing to financial inclusion and economic growth.

  • High Growth Potential: These banks operate in areas with immense growth potential. As they expand their services and reach, investors have the opportunity to capitalize on their growth trajectory.

  • Customer-Centric Approach: Small finance banks prioritize building personal relationships with their customers, fostering loyalty and trust, which can translate into stable and sustainable revenue streams.

  • Technological Innovation: Embracing digital innovation allows these banks to streamline operations, reduce costs, and improve efficiency, contributing to their overall profitability.

Performance Overview of the Best Small Finance Bank Stocks in India

Top Small Finance Bank Stocks #1: AU Small Finance Bank

AU Small Finance Bank Limited has shown a positive financial performance for the second quarter and the first half of the fiscal year ending September 30, 2023. In the second quarter, the bank reported a rise in net income to INR 4,018.35 million, up from INR 3,425.99 million in the same period last year. This improvement in profitability is also reflected in the earnings per share (EPS) figures. Basic EPS from continuing operations increased to INR 6.02, up from INR 5.27, while diluted EPS grew to INR 5.98 from INR 5.24.

The six-month period also witnessed a similar upward trend. The bank's net income for the half-year stood at INR 7,887.31 million, marking a significant increase from INR 6,104.65 million reported in the previous year. Additionally, both basic and diluted EPS from continuing operations saw growth, with basic EPS rising to INR 11.82 from INR 9.54, and diluted EPS increasing to INR 11.74 from INR 9.47.

Top Small Finance Bank Stocks #2: Equitas Small Finance Bank

Equitas Small Finance Bank Limited reported a substantial increase in its financial performance for the first quarter ending June 30, 2023. The bank's revenue soared to INR 14,253.27 million, a notable rise from INR 10,736.19 million in the previous year. Net income more than doubled to INR 1,912.01 million from INR 970.05 million. This improvement was also reflected in the earnings per share (EPS), with basic EPS growing from INR 0.77 to INR 1.72, and diluted EPS increasing from INR 0.77 to INR 1.69.

Top Small Finance Bank Stocks #3: Ujjivan Small Finance Bank

For the second quarter and six-month period ending September 30, 2023, Ujjivan Small Finance Bank Limited reported an increase in net income. In the second quarter, net income rose to INR 3,277.4 million from INR 2,942.9 million a year earlier. Basic EPS for the quarter increased to INR 1.68 from INR 1.59, and diluted EPS went up to INR 1.65 from INR 1.59. Over six months, the bank's net income reached INR 6,518.1 million, up from INR 4,972.3 million, with basic EPS rising to INR 3.33 and diluted EPS to INR 3.29, compared to INR 2.69 in the previous year.

Top Small Finance Bank Stocks #4: Suryoday Small Finance Bank

Suryoday Small Finance Bank Limited also reported a robust first quarter for 2023. The bank's net interest income increased to INR 2,247 million from INR 1,770.8 million a year ago. Net income witnessed a significant jump to INR 476 million from INR 77.5 million. EPS showed remarkable growth, with both basic and diluted EPS escalating to INR 4.48 from INR 0.73.

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Why Small Finance Banking Stocks are Rising?

The remarkable ascent of small finance banking stocks is not a coincidence; it is driven by their unique role and approach in the banking sector. Here are the key factors contributing to their rise:

1. Targeting the Underserved: Small finance banks have a specialized mission to address the banking needs of segments that have often been overlooked by traditional banks. These include small business units, small and marginal farmers, micro and small enterprises, and other economically vulnerable groups. By providing tailored financial solutions, they bridge critical gaps in the banking sector.

2. Emphasis on Financial Inclusion: Financial inclusion is at the heart of their operations. Small finance banks are committed to extending the benefits of formal banking to every corner of the country. They actively seek out underprivileged areas and provide the essential banking services that these communities need. This commitment to financial inclusion aligns with the Indian government's broader goal of making banking services accessible to all.

3. Leveraging Technology: These banks have adopted technology as a catalyst for growth. By embracing digital solutions and innovative banking technologies, they can reach remote areas and offer financial services efficiently. The integration of technology not only enhances accessibility but also improves the overall banking experience for their customers.

4. Expanding Their Presence: Small finance banks are on an expansion spree, establishing their presence in regions where banking services were scarce. This geographical diversification not only fosters financial inclusion but also stimulates economic growth in these underserved areas. It is no wonder that their efforts are being recognized and appreciated.

5. Reshaping the Industry: With their unique positioning and approach, small finance banks are reshaping the banking industry in India. They are setting new standards in customer service, accessibility, and innovation. In doing so, they are driving growth and inspiring traditional banks to adapt and evolve.

Future of Small Finance Banking Stocks

The future of small finance banking stocks in India is indeed promising, with several factors pointing towards sustained growth and influence:

1. Commitment to Financial Inclusion: These banks remain steadfast in their commitment to financial inclusion. As India continues to make strides in expanding access to banking services, small finance banks will play a pivotal role in ensuring that the benefits of banking reach even the most remote and underserved areas.

2. Untapped Potential: There are vast, untapped areas in India that have yet to experience the benefits of formal banking. Small finance banks are well-positioned to address these gaps. As they extend their reach, they will unlock new opportunities for economic development and inclusion.

3. Innovation and Technology: With a keen focus on innovation and technology, these banks will continue to adapt to the evolving banking landscape. This will not only enhance their service offerings but also make banking more convenient and efficient for their customers.

4. Economic Growth: By fostering financial inclusion and stimulating economic growth in underserved areas, small finance banks will contribute significantly to the overall economic development of the country. This impact on the broader economy will be a driving force for their future growth.

5. Customer-Centric Approach: Small finance banks are known for their customer-centric approach. By prioritizing the needs and preferences of their customers, they will continue to build trust and loyalty, which is a key factor in their sustained success.

6. Shaping the Future: As pioneers of financial inclusion and innovation, small finance banks are well-positioned to shape the future of banking in India. Their influence on the industry will only increase, further solidifying their role in the country's financial landscape.

Factors to Consider Before Investing in Small Finance Bank Stocks

Before investing in small finance bank stocks, it's crucial to evaluate the following factors:

  • Credibility and Trustworthiness: Assess the bank's reliability, track record, and regulatory compliance to establish its credibility and trustworthiness.

  • Interest Rates: Consider the interest rates offered by these banks, as they directly impact the bank's profitability and potential returns for investors.

  • Financial Performance: Analyze profitability, net interest margins, asset quality, and risk management practices to assess financial stability and growth potential.

  • Competitive Landscape: Consider the competitive advantages and disadvantages of small finance banks compared to traditional banks and post offices.

  • Risk and Investment Objectives: Evaluate your risk tolerance and investment objectives to ensure that they align with potential returns and the associated risks of investing in small finance bank stocks.

By carefully analyzing these factors, investors can make informed decisions that align with their financial goals and risk tolerance.

Wrapping Up

In conclusion, small finance bank stocks in India represent a compelling investment opportunity. Their dedication to financial inclusion, high growth potential, customer-centric approach, and technological innovation make them standout players in the banking sector. As these banks continue to reshape the future of banking in the country, investors have the opportunity to participate in this transformative journey, contributing to both financial growth and social inclusion. Small finance banks are not just an investment; they are a pathway to a more inclusive and prosperous India.

Interested in exploring banking sector stocks? Deep dive into the world of banking sector and analyze top performing companies in our detailed sector analysis tool for Top Banking Sector Stocks in India .

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  1. Which is the No 1 small finance bank in India?

The No. 1 small finance bank in India can vary depending on various performance indicators and market conditions. Investors should consider various factors, including financial performance, growth prospects, and their investment goals when determining which small finance bank to invest in.

  1. What are 11 small finance banks in India?

11 Small Finance Banks in India are:

  • AU Small Finance Bank

  • Equitas Small Finance Bank

  • Ujjivan Small Finance Bank

  • Suryoday Small Finance Bank

  • Utkarsh Small Finance Bank

  • ESAF Small Finance Bank

  • Jana Small Finance Bank

  • Fincare Small Finance Bank

  • North East Small Finance Bank

  • Utkarsh Small Finance Bank

  • Suryoday Small Finance Bank

  1. Is it good to invest in small finance bank?

Whether it is good to invest in a small finance bank or any other bank depends on your investment goals, risk tolerance, and the specific financial performance and growth prospects of the bank in question. Small finance banks can offer growth opportunities, but they also come with certain risks, so it's important to conduct thorough research and consider your investment objectives before investing.

  1. Which small finance bank is profitable?

The profitability of small finance banks can vary over time and depends on various factors, including their business strategies, asset quality, and market conditions. Some small finance banks may be profitable, while others may face challenges. It's essential to review the financial statements and performance indicators of a specific bank to assess its profitability.

  1. Which is the fastest-growing small bank in India?

The fastest-growing small finance bank in India can change over time and may depend on different growth metrics. To determine the current fastest-growing small finance bank, you would need to review the latest financial reports, market data, and growth indicators.

  1. Which is the oldest small finance bank?

The oldest small finance bank in India, as of my last knowledge update, was Ujjivan Small Finance Bank, which was incorporated in 2016. It's important to note that small finance banks are relatively new in the Indian banking sector, and their establishment was facilitated by the Reserve Bank of India to promote financial inclusion.

  1. How can I invest in small finance bank stocks using the Wright Research?

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