CreditAccess Grameen Ltd, Five-Star Business Finance Ltd and L&T Finance Ltd soared up to 15 per cent in Thursday's trade after the RBI came out with two notifications, saying microfinance loans in the nature of consumer credit would be risk weighted at 100 per cent and that risk weights applicable to NBFCs rated A and above is being restored to pre-November 2023 levels.
CreditAccess Grameen shares climbed 15.13 per cent to Rs 997. Five-Star Business Finance advanced 6.97 per cent to Rs 763. L&T Finance Ltd shares were up 4.09 per cent at Rs 138.85. Cholamandalam Investment and Finance Company Ltd (CIFC) gained 4.30 per cent to Rs 1,426. Following the increased risk weights on NBFC exposure, banking credit growth to NBFCs had reduced from 22.1 per cent YoY in October 2023 to 6.6 per cent YoY by December 2024. This is likely to normalise hereon, JM Financial said.
"We had previously estimated the borrowing cost impact of these regulations to be 10-20bps on NBFCs, and expect the same to reverse. Amongst NBFCs, impact on cost of borrowings is expected to be under 0.1 per cent, with Five-Star Business Finance and L&T Finance expected to see highest improvement," the brokerage said.
MOFSL said there are no winners or losers among NBFCs solely based on RBI’s change in risk weights on bank loans to NBFCs. Ideally, every NBFC should benefit from this restoration of risk weights, particularly those with a higher proportion of non-PSL bank borrowings in their liability mix.
The brokerage said NBFCs are unlikely to see significant benefits in their cost of borrowing. Benefits, if any, on non-PSL bank borrowings will be 10-15 bps, potentially leading to a 2- 5bp decline in the overall borrowing costs for AAA/AA-rated NBFCs. This would translate into an insignificant 0.5-1 per cent increase in earnings for these NBFCs.
"While the impact on CoB and earnings itself is insignificant, NBFCs like CIFC, LTFH, MUTH, and MGFL, which have a relatively higher (compared to peers) proportion of non-PSL bank borrowings, could benefit (albeit marginally) more than their peers," MOFSL said.
Nuvama said most NBFC MFIs had switched to the PTC/DA route to get funding. Given challenges in the sector, banks may continue to give preference to this route over direct lending.
"There is some rising stress in small-ticket MSME and banks would continue with their cautious approach here. Therefore, this change is more beneficial to the larger NBFCs. CIFC, SBI Card, Five-Star, L&T Finance and MMFS benefit in that order," Nuvama said.
The relaxation on MFI is positive for banks’ CAR while relaxation in NBFC is positive only for NBFCs not banks.