Bank Nifty ended its four-day losing streak and gained on February 27, supported by a rally in heavyweight stocks like HDFC Bank, Axis Bank, IndusInd Bank, and IDFC First Bank. The positive momentum followed the Reserve Bank of India’s (RBI) decision to roll back the increased risk weight on bank loans to non-banking financial companies (NBFCs), a move that will free up capital for banks and boost lending capacity.
Small finance bank shares also experienced a sharp surge with RBI’s move. The shares in Equitas Small Finance Bank, AU Small Finance Bank, Ujjivan Small Finance Bank, Jana Small Finance Bank, Utkarsh Small Finance Bank, and Suryoday Small Finance Bank increased by as much as 4% in intraday trading as investor sentiment improved with a reversal in policy.
This new policy will take effect from 1st April 2025. The lowered risk weights will imply that banks will be required to hold smaller amounts of capital on loans made available to NBFCs, which will enhance their lending power.
Previously in November 2023, RBI had raised risk weights on these loans by 25 points, which made loans to AAA, AA, A-rated NBFCs more expensive in terms of capital. The measure had lowered bank loans growth in shadow lenders with growth on a year-on-year basis dropping to 6.7% in December 2024 from 15% in the same period last year.
Banks that are affected the most by the hike in risk weights are likely to be Bandhan Bank, RBL Bank, IDFC First Bank, and IndusInd Bank. The largest boost in terms of enhancing its capital adequacy ratios (CAR), in terms of estimates from analysts, is likely to be seen by Bandhan Bank and RBL Bank.
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Source: Moneycontrol.
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