IndusInd Bank, Bandhan Bank Could Gain As RBI Eases Risk Weights For Loans To NBFCs

IndusInd Bank Ltd. and Bandhan Bank Ltd. are set to be top beneficiaries owing to their higher microfinance exposures, as the Reserve Bank of India lowered the risk weights of bank loans to non-banking financial companies.

The central bank on Tuesday reduced the risk weights on bank loans to NBFCs from 125% to 100%, effective April 1. This reverses the risk weight increase implemented in November 2023, providing relief to NBFCs.

Analysts said the RBI's relaxation is a sign of a more accommodative regulatory stance, which will be highly positive for the financial sector. The reduction in unsecured loan growth from 25% to 10% indicates a cooling trend, they noted as they anticipate the regulator will eventually reduce RWA on these loans as well.

As per Macquarie, banks should see a 20-250 basis points positive impact on Common Equity Tier 1 or CET1 ratio — a stress tests to gauge a bank's liquidity and ability to survive a financial crisis.

For Bandhan Bank, CET1 will improve by 2.5 percentage points from 13.8% to 16.3%. IndusInd Bank's ratio will rise from 15.2% to 15.8%, the brokerage expects.

Banks fund nearly 50% of fund requirements for NBFCs, including subscribing to debt papers. The relaxation in risk-weighted assets or RWA for bank loans to NBFCs will ease credit flow, Macquarie said, adding it now expects some reductions in interest rates on a selective basis for well-rated NBFCs.

CLSA said RBI's move will "further instill investor confidence" for a quick recovery in MFIs, highlighting its recent upgrade on Bandhan Bank stock.

It also sees AAA-rated NBFCs like Bajaj Finance Ltd. and SBI Cards & Payment Services Ltd. to benefit from the RWA revision on their borrowing cost.

Mid-sized private banks and PSU banks should get higher benefit as they have higher exposure to the MFI and NBFC segments, respectively, according to Morgan Stanley. "For large private banks, the exposure are relatively lower and their CET1 ratios are much higher to start with," it said in a note.