After the Reserve Bank of India (RBI) tightened norms for consumer credit, Poonawalla Fincorp Ltd on Friday (November 17) said the anticipated rise in the risk weight from 100% to 125% on the company's consumer credit exposure is expected to be marginal, hovering around 220 basis points (bps).
"Based on our initial calculations, the increase in the risk weight from 100% to 125% on the company's consumer credit exposure shall be marginal and is expected to be around 220 bps," the non-banking financial institution (NBFC) stated in a regulatory filing at exchanges.
Even with this adjustment, the resultant capital adequacy is expected to remain strong, hovering around 40%, a substantial surplus over the regulatory mandate of 15%, Poonawalla Fincorp said.
This comes after the central bank tightened norms for consumer credit as it asked banks and NBFCs to assign a higher risk weight for unsecured personal loans, a move aimed at making the lenders more cautious about such advances.
The Adar Poonawalla-controlled NBFC said it has a strong capital base with the highest credit rating of ‘AAA’ from Crisil and CARE. The debt-equity ratio as of September 30, 2023, was 1.4x, among the lowest in the NBFC sector.
Coming to long-term plans, the NBFC said, "We do not expect our debt equity to go beyond 4x. Given our strong capital adequacy, either on an immediate basis or in the foreseeable future, we do not expect any impact of the increased risk weights on our growth trajectory and profitability."
Poonawalla Fincorp said it enjoys the highest credit rating and has among the lowest costs of borrowing. Also, its capital adequacy is among the highest in the industry, leading to very low leverage, it said.
With a reasonable portion of the company's assets under management (AUM) qualifying for priority sector lending, Poonawalla Fincorp anticipates minimal impact on borrowing costs.
In terms of risk mitigation, Poonawalla Fincorp's ratio of secured to unsecured book mix, as of September 30, 2023, stands at 46:54, signalling a strategic push to elevate the secured portion to over 50%, "Overall, the company expects to continue to perform well as per guidance given on both growth and profitability."
Shares of Poonawalla Fincorp Ltd ended at ₹371, down by ₹12.75, or 3.32%, on the BSE.
