NBFC shares fall on RBI move to curb risks in consumer lending
New Delhi: Banking and Non-Banking Financial Companies (NBFCs) stocks took a sharp plunge in Friday’s trade following the Reserve Bank of India’s (RBI) decision to increase the risk weightage on unsecured loans.
RBL Bank witnessed a nearly 7 percent decline, while AB Capital slid by almost 6 percent. SBI Card observed a drop of over 5 percent, L&T Finance Holdings and Ujjivan faced dips of more than 5 percent and 4 percent, respectively. IDFC First Bank and IIFL registered declines exceeding 3 percent each.
Among the heavyweight stocks, Axis Bank and SBI experienced a 3 percent downturn, and Bajaj Finance declined by 1.8 percent.
V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the RBI’s move to increase risk weights on unsecured loans has cast a negative sentiment on financial entities.
JM Financial Institutional Equities, in a report, highlighted the RBI’s announcement regarding the elevation of risk weights pertaining to consumer lending products and credit cards. This step aims to address the growing risks associated with these segments that have witnessed substantial growth in recent years.
Additionally, to reduce the dependency of NBFCs on bank lending, risk weights on bank exposures to NBFCs have been raised.
The report also mentioned the potential impact on CET1 (Common Equity Tier 1) ratios, estimating a 70-80 basis point effect on larger banks like HDFC, ICICI, Axis, Kotak, and SBI.
Motilal Oswal Financial Services, in its report, highlighted that the segments affected by the increased risk weights constitute 10-16 percent of loans for coverage banks.
Moreover, the RBI’s decision to heighten risk weights for banks lending to NBFCs, excluding loans to housing finance companies and priority sector-eligible NBFCs, might lead to an increase in interest rates on these products to maintain profitability. This change could also elevate borrowing costs for NBFCs.
The impact of these changes on capital ratios is estimated to range from 30-85 basis points, with SBI Cards standing out as the most affected, projecting a 416 basis point impact.
