The two banking and NBFC firms that suffered the most after the Reserve Bank of India (RBI) tightened the requirements for credit cards and personal loans were RBL Bank and SBI Card, which dropped 9.5% and 6.7% in the morning session on November 17.
During intraday trading, RBL Bank fell 9.5% to Rs 230.555, SBI Cards and Payment Services fell 7% to Rs 720.40, AB Capital Money (6%) at Rs 168.50, Ujjivan Financial Services (5% to Rs 556.05), L&T Financial Holdings (5%) at Rs 141.80, IDFC First Bank (4%) at Rs 117, IDBI Bank (4%) at Rs 63.08, Bajaj Finance (3%) at Rs 7,122, and State Bank of India (3%) at Rs 565.45).
These Shares Are Declining: Why?
Because of the unchecked rise in these unsecured loans, the central bank raised the risk weight on consumer loans one day early.
Lending rates for unsecured consumer loans may increase as a result of the action, which would increase capital requirements. According to Nuvama Institutional Equities, RBL Bank and SBI Card will be most negatively impacted by the change, which eliminates their growth multiple, on the high credit care share.
Since unsecured loans account for all of SBI Card’s assets under management (AUM), the financial counter would be among the most severely impacted. These loans account for 31.8% of all loans that RBL Bank has made.
Given that it eliminates the growth multiple and raises the cost of funds (CoF) for NBFCs, Nuvama Institutional Equities warned that the action might have a detrimental effect on the industry as a whole.
Even with modest exposures, its channel checks and the RBI’s FSR indicated that the non-SBI PSU banks had substantial non-performing loans (NPLs) on unsecured loans.
“All lead lenders will rectify, but we specifically call out state-owned banks, ABFRL, RBL Bank Ltd., Kotak Mahindra Bank Ltd., SBI Card, and Axis Bank (lower capital) since they would lose growth or have low capital. Because of their minor exposures, IndusInd Bank, LIC Housing Finance, and City Union are the lenders least impacted, according to the brokerage.
Lenders could raise loan rates to counteract the effect on profitability, according to Motilal Oswal Securities. As banks attempt to raise lending rates, the cost of borrowing for NBFCs would also rise since increased risk weight results in higher capital consumption, the report said.