The recent move by the Reserve Bank of India (RBI) to tighten capital norms for unsecured retail loans has sent shockwaves through the banking sector, impacting major players. The focus on unsecured lending, including personal loans, credit cards, and exposure to non-banking financial companies (NBFCs), is expected to reshape the lending landscape for prominent financial institutions.
Retail loans and lending to NBFCs have been the driving force behind nearly 50% of the incremental credit growth over the past year. Concerns over the rising leverage and potential defaults in the unsecured lending space prompted the RBI to introduce measures aimed at safeguarding financial stability.
The stricter rules, particularly targeting unsecured lending, are anticipated to impact the capital levels of lenders, forcing them to adopt a more conservative approach to unsecured lending to conserve capital.
Large banks and NBFCs are expected to be better equipped to adapt to these changes, given their comfortable capital buffers. While the impact on capital levels is acknowledged, most of the major lenders remain above the regulatory requirement even after factoring in the higher risk weights. These institutions are likely to pass on the increased cost to borrowers and adjust their lending strategies to navigate the evolving landscape.
Impact on major banks
State Bank of India (SBI)
As the largest public sector bank, SBI is bracing for the impact of stricter norms. While possessing a lower Capital Adequacy Ratio (CAR) compared to private sector counterparts, SBI may need to accelerate its capital-raising efforts to meet the revised requirements.
The increased risk weights on unsecured loans could prompt SBI to reassess its lending strategy and risk management practices.
HDFC Bank
HDFC Bank, a key player in retail lending, is not immune to the effects of the regulatory changes. The bank, known for its robust risk management, may need to recalibrate its exposure to unsecured loans. The impact on HDFC Bank could influence its capital allocation and necessitate adjustments in its lending portfolio.
ICICI Bank
As a major private sector bank, ICICI Bank is likely to experience a significant impact on its unsecured lending business. The bank’s adaptability to the evolving regulatory environment will be crucial in managing the repercussions.
ICICI Bank may need to review its risk models and lending practices to align with the heightened regulatory scrutiny.
Axis Bank
Axis Bank faces the prospect of substantial changes in its unsecured lending operations. The bank’s ability to swiftly adapt to the new norms will determine its resilience. Axis Bank may explore strategic adjustments to maintain a balance between growth and compliance with the revised regulatory framework.
Impact on Non-Banking Financial Companies (NBFCs)
Bajaj Finance
Bajaj Finance, a leading NBFC specialising in consumer durable and personal loans, is expected to witness a notable impact on its capital levels. The increased risk weights may necessitate a thorough review of its lending practices.
The NBFC may need to reconsider its exposure to unsecured loans and make strategic adjustments to align with the regulatory requirements.
SBI Cards
As a significant player in the credit card segment, SBI Cards could face challenges in maintaining capital adequacy following the RBI’s stringent norms. The impact on SBI Cards is likely to influence its lending strategies and growth trajectory.
SBI Cards may need to reassess its risk management framework and explore avenues for capital infusion to navigate the changing regulatory landscape.
Aditya Birla Finance
Aditya Birla Finance, with a diverse lending portfolio, may experience the effects of higher risk weights on its unsecured consumer loans. The NBFC might need to recalibrate its risk assessment methodologies and enhance its risk mitigation strategies.
The impact on Aditya Birla Finance underscores the broader implications of the RBI’s measures on the entire NBFC sector, urging a comprehensive review of lending practices.
