It was a freaky Friday for non-banking financial companies (NBFCs) and certain banks, as the Reserve Bank of India’s (RBI) decision to raise risk weights on unsecured loans dragged their stocks down.
RBL Bank, Satin Creditcare and Aditya Birla Capital were the major losers, plunging 7.7%, 6.2%, and 5.7%, respectively. Bajaj Finance declined 2%. Among the fintech giants, SBI Card declined 5.2% and Paytm 1.9%.
“Housing fin and priority sector NBFCs are exempt from the higher risk weights. If banks have to put down more capital to lend to NBFCs, they will charge higher interest rates (or not lend), meaning NBFCs will issue more bonds, and yields should increase,” Deepak Shenoy, founder & CEO, Capitalmind, said on platform X.
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Sectorally, the Bank Nifty shed close to 1.5%, while the Nifty Financial Services fell 0.9%. PSU banks took a bigger hit than their private peers. The Nifty PSU Bank index slid 2.4%, while the Nifty private bank index fell 1.3%.
SBI was the biggest loser, falling 3.7% on the Nifty, while Punjab & Sind Bank was the only PSU counter to close marginally in the green. Among the private names — besides RBL Bank — Axis Bank and IDFC First Bank shed more than 3% each. All private banks closed in the red.
“Companies that have a strong credit rating and thus the ability to raise money easily won’t be much impacted, such as Bajaj Finance. The hit will be on those NBFCs that borrow from banks,” Deven Choksey, MD at DRChoksey Finserv, said.
Insurance and mutual fund stocks, however, made gains. SBI Life was up almost 3.8%, ICICI Lombard more than 3%, while HDFC AMC jumped more than 3.1%. HDFC Life also rose 2.4%, while ICICI Prudential gained close to 2%.
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According to Choksey, investors shifted money from banking stocks to insurance and asset management companies. Insurers are benefiting because premium collection is on the higher side, and AMCs because of the rising assets under management or AUM figures.
“Specifically, EQ SFB/AU Bank is expected to experience minimal-to-no impact. Conversely, RBL may witness an approximately 80 bps impact owing to its significant exposure in the credit card business. Likewise, Ujjivan and Suryoday are projected to encounter a more substantial impact, with approximately 126 bps and 193 bps, respectively, owing to their individual lending business models,” a note by Centrum said.
RBI on Thursday raised the risk weight on consumption loans, credit card exposures and loans to NBFCs by 25 percentage points each, in a move to curb the fast growth of unsecured lending. This will lead to higher cost of capital, as lenders will try to cover up for the increase in capital requirement.
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