Brokerages expect rise in lending rates due to RBI's new norms on personal loans, credit cards

The brokerage said increased risk weight on unsecured consumer credit, credit cards, and NBFC lending for banks might have a limited impact on housing finance companies (HFCs). They anticipate potential improvements in pricing and discipline within the unsecured lending space. However, they highlighted the State Bank of India (SBI) as potentially facing the most significant impact due to its comparatively lower capital base.

The brokerage weighed in, emphasising the adverse effects on CET-1 (Common Equity Tier-1) for several banks as a result of increased risk weights on unsecured credit. They specified expected reductions in CET-1, with RBL facing a 75 basis points decline, HDFC Bank at 50 basis points, ICICI Bank at 42 basis points, Axis Bank at 36 basis points, and similar impacts on other banks.

The brokerage anticipated a reduction of 40-80 basis points in Tier I capital for banks due to the RBI's measures. They highlighted the indirect indication from RBI to banks to slow down on unsecured loans and estimated the potential impact on major financial institutions such as Bajaj Finance and SBI Card, with reductions of approximately 230 basis points and 415 basis points, respectively.

The brokerage focused on the potential consequences of the RBI's actions, suggesting that they could push up borrowing and lending rates within the financial landscape. They also highlighted a potential tactical advantage for housing finance stocks as they remain unaffected by the new RBI norms, suggesting preferences for Can Fin Homes, PNB Housing Finance, Aptus, and Home First.

HSBC highlighted the additional capital consumption expected for banks and NBFCs, estimated at 40-80 basis points. They mentioned specific institutions like Bajaj Finance, SBI Cards, and Ujjivan Small Finance Bank as potential outliers likely to be more impacted. They also anticipate an increase in loan pricing for NBFCs and personal loans, with SBI Cards expected to face the most substantial impact.

The brokerage underlined the headwinds expected for the sector due to the increased Risk-Weighted Assets (RWA), projecting a potential slowdown in loan growth, especially for NBFCs. They emphasised that while most private banks are well-capitalised and can absorb the impact, the lower CET1 ratios of PSU banks pose a more considerable concern. They also warned about the potential higher eventual impact, particularly on select NBFC exposures, resulting in more risk weights for banks along with top-up loans against movable assets.