With the RBI signalling lenders to slow down growth by increasing risk weight by 25% on consumer credit, shares of Paytm, Bajaj Finance and SBI Cards were among the worst in the market today and fell up to 7%.
The impact of RBI’s tightening was felt across stocks of most banks and non-banking financial companies (NBFCs). Shares of SBI Card fell up to 7% to Rs 720.40, Bajaj Finance was down 3% to Rs 7122.05, while Paytm fell 4% to Rs 870.20.
Among banks, IDFC First Bank fell over 3%, while PNB, Axis Bank, SBI and Bandhan Bank were trading around 2-3% lower.
Industry watchers say RBI tightening was more than expected as it encapsulated all forms of unsecured loans not just below Rs 50,000 loans which was a segment that RBI was most worried about.
“While most lenders are well-funded, impact is highest for SBI Card & Bajaj Finance, followed by larger private banks & select PSUs. Bandhan & IndusInd Bank see the least impact. Banks may tighten norms/raise rates; Paytm may see earnings risk if partners tighten,” Jefferies said.
Analysis of segment-wise exposure of banks indicates that banks will see a 50-60bps impact on Tier I CAR due to a rise in risk weights on personal loans, credit card dues and loans to NBFCs. Large private banks will see a higher impact due to a higher share of unsecured loans. PSU banks have tad lesser impact than larger private banks, the brokerage said.
Among smaller banks, IndusInd & Bandhan have a lower impact while IDFC First Bank has a higher share of unsecured loans.
“While most private banks are well capitalised, this may force some banks (especially for PSU banks like SBI & PNB) to advance capital raising cycle by a year or so. Banks may also look to raise rates on loans to NBFCs and tighten lending norms, which may impact earnings,” Prakhar Sharma of Jefferies said.
For Paytm’s lending partners, he said higher funding costs and increased capital requirements will affect product profitability. “They may respond by tightening credit standards and/or moderating growth from elevated levels right now. We also watch out for pricing environment and ability of Paytm to pass-through hike in funding costs. In our base case earnings, we forecast consumer loan disbursal growth to normalise from ~90% in FY24E to 40% in FY25 and 35% in FY26,” Jefferies said.
Kotak Institutional Equities said large private banks have better levers to address this possible slowdown.
“We do not see any impact on public banks, including SBI, which have a lower CAR on a relative basis. SBI Card could have an impact on earnings and capital adequacy ratios. A slowdown in credit to a specific sector is usually an early indicator of stress that could lie ahead. We would be watchful, as we have not heard any meaningful remarks on asset quality, thus far from lenders, but this could change with today’s development,” Kotak’s MB Mahesh said.
The RBI has also increased risk weight for banks lending to NBFCs by 25%, excluding loans to housing finance companies (HFCs) and loans to NBFCs, which are eligible for classification as priority sector.
Besides, the RBI has also suggested that all lenders should review the sectoral exposure limits for consumer credit and put in place board approved limits for various retail segments, specifically the unsecured retail.
While the measure is prudential in nature, analysts say it will not only impact the capital ratios of lenders but also compel them to increase interest rates on such products to mitigate the impact on RoE.
Unsecured retail loans have been growing by 20-60% YoY across major lenders and have been a cause of concern as highlighted by RBI in recent months.
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