The Reserve Bank of India’s move to raise risk weight on consumer loans would impact SBI Cards and Bajaj Finance more, followed by larger private banks & select PSUs, according to a report by Jefferies. Bandhan and IndusInd Bank will see least impact, while Paytm may see earnings risk if partners tighten, it said.
It said that the increase in risk weights is tighter than expected as RBI’s concerns were mostly on sub-Rs50k loans.
Jefferies said the banks will see a 50-60 bps 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 higher impact due to higher share of unsecured loans. PSU banks have tad lesser impact than larger private banks. Among smaller banks, IIB & Bandhan have lower impact; IDFC First Bank has 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,” it said.
Impact on NBFCs
NBFCs with a higher share of unsecured consumer loans like SBI Cards (100 per cent), Bajaj Finance (37 per cent) & Aditya Birla Finance (21 per cent) should be most affected by tighter capital norms; auto NBFCs may see lower impact & HFCs should be least affected, it said.
“SBI Cards/ BAF can see c.400bps/220 bps hair cut to Tier 1 CAR, but both are well capitalised and have higher ROEs (low capital consumption). IIFL (standalone entity)/ ABFL can see a 50-80 bps haircut to tier 1 cap which can lower their tier 1 to 13 per cent / 15 per cent. IIFL may need to infuse capital in the standalone entity; at ABFL, the next phase of capital raise may get advanced,” it said.
Topline may moderate if NBFCs curtail growth in unsecured segments or see a rise in funding costs. SBI Cards faces highest drag on Tier I CAR and highest dependence on bank funding, it said.
Impact on fintechs
Tightening by lending partners can impact contribution by 2-3 per cent, it said. “For Paytm’s lending partners, higher funding costs and increased capital requirements will affect product profitability in BNPL/PL. They may respond by tightening credit standards and/or moderating growth from elevated levels right now. We also watch out for the 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 estimated 90 per cent in FY24E to 40 per cent in FY25 and 35 per cent in FY26,” Jefferies said.
Any additional 10ppt slower disbursal growth (vs. base case) in FY25/26E can lead to 5-10 per cent impact on lending revenues and 2-3 per cent impact on overall contributions, which may impact break-even timelines as well. Paytm may be able to compensate this through a faster ramp-up of merchant financing business.
