BENGALURU, Nov 17 (Reuters) – Shares of Indian lenders tumbled on Friday on fears that loan growth and profits could take a hit, a day after the RBI tightened rules for personal loans and credit cards to curb sharp growth in the riskier lending products.
The Nifty Bank index and the Nifty Financial Services Index fell 1% each, with top non-banking financial company (NBFC) Bajaj Finance sliding 3.5% and SBI Card down 6.7%.
Strong loan growth, led by retail lending on the back of robust consumption, has boosted profits at Indian lenders this year. Better asset quality has also helped state-run lenders outpace the blue-chip indexes.
The Reserve Bank of India (RBI), concerned by the surge in consumer loans, on Thursday increased risk weights on retail loans. Banks and NBFCs will need to set aside more capital for every loan to cover for the likelihood of bad loans, making the loans costlier and potentially curbing growth.
Unsecured personal loans increased 23% from a year ago as of Sept. 22, 2023, while outstanding amounts on credit cards jumped nearly 30%, according to RBI data. Overall bank credit grew about 15% over the past year.
In a double whammy to non-bank lenders, the RBI also asked banks to set aside additional capital against loans to some categories of NBFCs, potentially raising funding costs for NBFCs.
Analysts at Macquarie Capital Securities said retail loans and bank lending to NBFCs contributed to about 50% of new credit in the last 12 months.
They estimated that if growth in the two segments declined by 500 basis points, it could mean loan growth in the whole system could decline by about 200 basis points.
While private banks that are well-capitalised can absorb the impact well, state-run lenders with lower common equity tier 1 ratios (CET1) could face bigger issues, Macquarie added.
The brokerage estimated top private lender HDFC Bank could see the biggest impact from RBI’s move to its CET1 ratio, of about 0.54%, while SBI Card, the credit card arm of State Bank of India may see a 4.52% hit to its CET1 ratio.
HDFC Bank shares fell as much as 1.3%, while SBI dropped 3.3%.
