The finance industry in India is undergoing a significant transformation, with fintech companies like Paytm challenging traditional Non-Banking Financial Companies (NBFCs) such as Bajaj Finance. This shift prompts investors to evaluate financial parameters like Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios to assess valuation and performance.
Let’s understand the financials of Paytm and assess if it is better than other NBFCs in the country.
NBFCs’ Growth and Challenges
NBFCs have been an anchor to India’s financial system, providing credit to sectors often underserved by traditional banks. In FY24, the NBFC sector experienced a 21% year-on-year credit growth. However, this growth is projected to moderate to 17% in FY25, reflecting a careful assessment.
The sector has also faced challenges, including regulatory scrutiny. For instance, in October 2024, the Reserve Bank of India imposed lending restrictions on Asirvad Micro Finance, a unit of Manappuram Finance, due to concerns over high-interest rate practices.
This action led to a significant decline in Manappuram’s share price and prompted rating downgrades from several brokerages.
Comparative Analysis: Paytm vs. NBFCs
When comparing Paytm to traditional NBFCs, several factors come into play:
- Growth Trajectory: Paytm’s rapid expansion in digital payments and financial services positions it as a tough competitor to NBFCs. Its ability to scale operations quickly and adapt to technological advancements gives it an edge in the evolving financial landscape.
- Regulatory Environment: Both fintech companies and NBFCs operate under the purview of the Reserve Bank of India. While fintechs like Paytm have faced regulatory challenges, such as the directive impacting Paytm Payments Bank in January 2024, NBFCs have also encountered increased oversight, affecting their operations and growth prospects.
- Profitability and Sustainability: Despite impressive revenue growth, Paytm has yet to achieve consistent profitability, as evidenced by its net loss in Q1 FY25. In contrast, many NBFCs have established profitable operations over decades, though they now face growth moderation and regulatory challenges.
Here is a comparison between finance stocks: Paytm, a fintech company, and Bajaj Finance, which is an NBFC:
1. Price-to-Earnings (P/E) Ratio
- Paytm: As of Apr 2025, Paytm’s P/E ratio is negative at -38.9, indicating that it is not yet profitable.
- Bajaj Finance: In contrast, Bajaj Finance holds a P/E ratio of 34.89, reflecting strong profitability and investor confidence.
2. Price-to-Book (P/B) Ratio
- Paytm: The P/B ratio is 3.89, suggesting that its market valuation is over three times its book value.
- Bajaj Finance: The P/B ratio stands at 6.43, indicating that it is valued even higher relative to its book value.
3. Share Price Performance
- Paytm: Trading at ₹810+ as of April 2025, Paytm share price has seen volatility due to profitability concerns.
- Bajaj Finance: With a current price of ₹8490+ Bajaj Finance remains a high-value stock backed by strong financial performance.
The Future of Digital Banking in India
The rise of fintech companies like Paytm signifies a shift towards digital banking solutions in India. Consumers are increasingly embracing digital platforms for their convenience, speed, and accessibility. However, the future of digital banking is not solely dependent on fintechs; traditional NBFCs are also adapting by integrating digital technologies into their operations.
Collaboration between fintechs and NBFCs could be a pathway forward, leveraging the technological innovation of fintechs and the established customer base and regulatory experience of NBFCs.
Such partnerships could enhance financial inclusion and offer diverse financial products to a broader segment of the population.
Conclusion
While fintech companies like Paytm are reshaping the financial services landscape in India, it is premature to declare them as the sole future of digital banking. Traditional NBFCs continue to play a vital role, and their evolution alongside fintechs will likely define the trajectory of digital banking in the country.