SBI Card says RBI's revised risk weight norms may impact capital adequacy by 4%

SBI Card on Friday said that its capital adequacy ratio is expected to go down by 4 per cent following the Reserve Bank of India's (RBI) latest decision to tighten consumer credit norms. On Thursday, the central bank said it has increased the risk weight on the consumer credit exposure of commercial banks and NBFCs by 25 percentage points.

The RBI's move will push banks and non-banking financial companies (NBFCs) to exercise greater caution in extending unsecured personal loans.

"This will impact the capital adequacy ratios for Banks and NBFCs – for SBI Card this impact will reduce capital adequacy by around 4 percent," SBI Card said in its statement.

SBI Card further said that this is a positive move by RBI to ensure prudent growth in unsecured lending.

SBI Card said that it is a AAA-rated company and has enough sources and a diversified lender base, to manage the impact.

"As of now, we are well capitalized and well above the regulatory guideline of 15 percent. If required, we will augment tier 2 capital. There is no need for us to raise equity. We are a profitable company, and our profits are sufficient to fund growth. The increase in risk weight on NBFC lending by banks may lead to an increase in the cost of borrowings for the industry," said SBI Card.

It added: "We do not foresee a significant impact on our cost of funds during this financial year. It may increase marginally in absolute terms on an annualised basis." 

RBI in its statement said: "It has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery, by 25 percentage points to 125%."

On Friday, shares of SBI Cards and Payment Services fell nearly 7 per cent in intraday trade. Analysts said among NBFCs, the fresh RBI move is seen to have a maximum impact on SBI Card.
In a note, Kotak Institutional Equities said the SBI Card stock fell 6.70 per cent to hit a low of Rs 720.40 on BSE. With this, SBI Card shares have fallen 17.35 per cent in the last six months. SBI Card could have an impact on earnings and capital adequacy ratios.

Nomura India said: "For NBFCs, we expect the impact on Tier 1 ratios to be in the range of 30-450 bps with the maximum impact on SBI Card and could warrant a capital raise. After SBI Card, Bajaj Finance will likely see a 250 bps impact on its Tier 1 ratio but it has already raised capital recently. The increase in cost of funds should be in the range of 10-30 bps with the maximum increase expected for SBI Card. Overall, SBI Card looks to be look the one with the maximum negative impact." 

Motilal Oswal Securities said it is expecting a 30-85 bps hit on capital ratios on account of the increase in risk weight. Its calculations suggested SBI Card remains the most vulnerable with a 416 basis points impact among NBFCs.

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