Shares of most Indian financial companies, particularly non-bank and microfinance-focused lenders, surged on Wednesday after the central bank eased its capital requirements for micro loans and bank credit.
Financial stocks (.NIFTYFIN) rose about 1%, surpassing the 0.7% increase in banking stocks (.NSEBANK). In contrast, the benchmark Nifty 50 (.NSEI) remained flat.
The Reserve Bank of India (RBI) reduced the higher capital requirements implemented in November. This change is part of a series of growth-supportive measures introduced since Sanjay Malhotra took over as governor in December.
Under his leadership, the RBI has eased liquidity, delayed some regulations, and relaxed restrictions on certain lenders.
“We think this bodes well for the financial sector and lays more emphasis on consumption and growth … and (we) reiterate our bullish view,” stated Macquarie analyst Suresh Ganapathy in a note.
On that day, Bandhan Bank (BANH.NS) saw a gain of 6%, while Shriram Finance (SHMF.NS), AU Small Finance Bank (AUFI.NS), and Ujjivan Small Finance Bank (UJJI.NS) each rose about 5%.
Cholamandalam Investment and Finance (CHLA.NS) and Aditya Birla Capital (ADTB.NS) advanced 4.5% each. Bajaj Finance (BJFN.NS) increased by 2.7%, and IndusInd Bank (INBK.NS) gained 2%.
In comparison, major private lenders like ICICI Bank (ICBK.NS) and HDFC Bank (HDBK.NS) rose by less than 1%.
Morgan Stanley analysts noted that the RBI’s move should benefit most NBFCs’ earnings, highlighting Aditya Birla Capital, PNB Housing, Shriram Finance, and Bajaj Finance as top beneficiaries.
Nomura analysts pointed out that banks with significant microfinance loan exposure, such as Bandhan Bank, IndusInd, and AU Small Finance Bank, would also receive much-needed relief.
Since the new rules were introduced in November, Aditya Birla Capital’s shares dropped 16%, while AU Small Finance Bank and IndusInd Bank fell by 28% and 31%, respectively. Bandhan Bank experienced the largest decline, with a 38% tumble, but it was also the top gainer on that day.
However, Axis Bank Chief Economist Neelkanth Mishra warned that reversing the broad-based decline in loan growth—caused by high liquidity costs and the RBI’s concerns about high loan-to-deposit ratios—could take time.
“While these (RBI) signals should help revive lending, we believe the binding constraint remains durable liquidity.”
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