Stocks like Bandhan Bank, RBL Bank, IndusInd Bank, IDFC First Bank have seen sharp intra-day gains after the Reserve Bank of India rolled back the increased risk weights on bank loans to Non-Banking Financial Companies (NBFCs) and Microfinance Institutions (MFIs). This move is expected to ease capital requirements for banks and NBFCs, potentially boosting lending in these sectors.
Nuvama on MFI Relaxation: Bandhan, RBL, and CIFC among key beneficiaries
According to a report by Nuvama, the relaxation in risk weights will benefit MFI-heavy banks, especially Bandhan Bank and RBL Bank. The reduced risk weight for NBFC loans will also lower the cost of funds for these companies, with Cholamandalam Investment and Finance Company being the biggest beneficiary.
“With norms being eased so much, the probability of the RBI approving Sumant Kathpalia’s (CEO of IndusInd Bank) reappointment for three years has improved,” the brokerage noted in its report.
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Among banks, those that had raised risk weights on MFI loans to 125% such as Bandhan Bank, RBL Bank, IDFC First Bank, and IndusInd Bank (IIB) will see improvements in capital adequacy ratios.
As per the brokerage house, Bandhan Bank’s CAR could improve by 280–300 basis points. RBL Bank could see a 40-basis point boost. IDFC First Bank’s CAR may improve by 25 basis points. AU Small Finance Bank’s CAR could rise by 15 basis points.
However, the brokerage also cautioned that while the relaxation on MFI loans is a positive for banks capital adequacy, the NBFC-related relaxation will be margin-negative and RAROC-neutral for banks.
Motilal Oswal on MFI Relaxation: RBI rollback to help ease pressure on banks
The brokerage house Motilal Oswal highlighted that the earlier increase in risk weights on bank loans to NBFCs (announced in November 2023) had put pressure on banks’ Common Equity Tier-1 (CET-1) ratios. The rollback will now help alleviate that pressure, particularly benefiting banks that already have thin capital buffers.
“The reversal in risk weights on MFI loans from 125% to 100%/75% will reduce RWAs (Risk-Weighted Assets) for banks, supporting capital adequacy levels,” added the brokerage house in its report.
The brokerage expects Bandhan Bank, IndusInd Bank,
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