RBI’s Tightened Norms Impact Bank and NBFC Stocks

RBI's Tightened Norms Impact Bank and NBFC Stocks

VoM News Desk | November 17, 2023 | 11:11 AM IST | Breaking News | Follow on Google News

RBI’s Tightened Norms Impact Bank and NBFC Stocks

RBI’s Tightened Norms Impact Bank and NBFC Stocks

The Reserve Bank of India’s (RBI) recent decision to tighten norms for personal loans and credit cards has led to a sell-off in the shares of banks and non-banking finance companies (NBFCs), including major players like Bajaj Finance, SBI Card, ICICI Bank, HDFC Bank, among others.

Market Reaction to RBI’s New Norms

Following the RBI’s announcement, there was noticeable selling pressure in the banking and financial sector. The Bank Nifty index fell over 0.7%, and the Nifty Financial Services index dropped over 0.6% in early trading on Friday. SBI Card shares experienced a significant decline, falling over 6%.

RBI Raises Risk Weights for Lenders

The RBI increased risk weights for unsecured retail loans by 25 percentage points to 125% for lenders and NBFCs. The risk weights for credit card exposures were also hiked by 25 percentage points to 150% for banks and 125% for NBFCs. Additionally, the RBI mandated that banks set aside more capital for loans to NBFCs where the current risk weight is below 100%.

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Exclusion and Reasoning Behind the New Norms

The new risk weight norms exclude housing, education, vehicle loans, and loans secured by gold and gold jewelry. This decision may have been influenced by the potential risk build-up in these categories, following robust growth post-Covid.

Impact on Banks and NBFCs

Analysts anticipate that these norms will make personal loans and credit cards costlier and could curb growth in these categories. The sector is seen as negatively impacted, with higher Costs of Funds (CoF) for NBFCs. The move is intended to enhance financial stability and prepare for potential macroeconomic challenges. Banks like Axis Bank, SBI, Kotak Mahindra Bank, RBL Bank, and Bank of Baroda, along with NBFCs like SBI Cards, Bajaj Finance, Aditya Birla Capital, Poonawalla Fincorp, and Cholamandalam Investment and Finance Company, are expected to be most affected.

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VoM News Desk

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