Mumbai: Shares of banks and non-banking financial companies (NBFCs) slumped on Friday in response to the Reserve Bank of India’s (RBI) decision to raise risk weights on cash credit, personal loans, and consumer durable loans by lenders. Analysts said investors will become more selective in their stock picks within the sector as the surge in cost of capital on account of the central bank’s step could squeeze lenders’ margins.
Jefferies said NBFCs with a higher share of unsecured consumer loans like SBI Cards (100%), Bajaj Finance (37%) & Aditya Birla Finance (21%) should be most affected by tighter capital norms. Large private banks will see higher impact due to higher share of unsecured loans, according to the brokerage. The impact on public sector banks will be a tad lesser than larger private banks, it said.
On Friday, SBI Cards plunged 5%, Bajaj Finance declined 1.9%, SBI slumped 3.7% and Axis Bank dropped 3.3%.
Among smaller lenders, RBL Bank shares plunged 7.8%, while IDBI Bank and IDFC First Bank shares declined around 4%. Indian Bank, Karur Vysya, Bank of Maharashtra and Karnataka Bank shares fell nearly 3%. Nifty Bank index fell 1.3%.
While high capital levels for the NBFCs (particularly post the recent raises) should provide them a cushion, we expect margin compression (increase in funding cost) and higher asset quality stress for some of them given the reliance on fintech led originations,” said IIFL Securities. Its top picks are HDFC, IndusInd and Axis among banks, and Bajaj Finance among NBFCs.
The central bank’s move was on account of concerns over the rapid growth in unsecured loans over the past five years, said analysts.
“We expect the indirect impact to be a moderation in unsecured loan growth for banks over the quarters to come,” said brokerage CLSA.
It said the move could also impact the growth rates of fintech intermediaries like Paytm.
Among NBFCs, shares of Satin Creditcare, L&T Finance, Aditya Birla Capital, Centrum Capital, Ujjivan Financial Services and Sundaram Finance fell nearly 5%.
The RBI increased risk weights on banks’ unsecured personal loans and consumer durable loans from 100% to 125%, and on credit cards from 125% to 150%. The risk weights on NBFCs’ unsecured personal loans, consumer durables loans and credit cards have increased from 100% to 125%.
Jefferies said among smaller banks, IndusInd and Bandhan have lower impact.
“Increase in risk weight from banks’ point of view is that banks will have to keep aside more capital, resulting in less money available for other types of loans,” said Bhavik Thakkar, CEO, Abans Investment Managers. “In order to avoid or minimise the impact of such unknowns, RBI uses its multiple tools to steer the financial stability, inflation and growth trio.”
