According to a Jefferies report, the Reserve Bank of India’s move to increase risk weighting on consumer loans will impact SBI Cards and Bajaj Finance more, followed by larger private banks and select PSUs. Bandhan and IndusInd Bank will see least impact, while Paytm may see revenue risk if partners tighten, it said.
It said the increase in risk weights was tighter than expected as RBI’s concerns were mostly on sub-Rs50k loans.
Jefferies said the banks will see a 50-60 bps impact on Tier I CAR due to increase in risk weights on personal loans, credit card dues and loans to NBFCs.
“Large private banks will see higher impact due to higher share of unsecured loans. PSU banks have slightly lower impact than larger private banks. Among smaller banks, IIB & Bandhan have lower impact; IDFC First Bank has higher share of unsecured loans.While most private banks are well capitalized, this may force some banks (especially for PSU banks like SBI & PNB) to advance the capital raising cycle by a year or so.Banks may also look to raise lending rates to NBFCs -s and consolidate loan sleeps, which can effective income,” it said.
Impact on NBFCs
NBFCs with a higher share of unsecured consumer loans like SBI Cards (100 percent), Bajaj Finance (37 percent) & Aditya Birla Finance (21 percent) should be most affected by tighter capital norms; Auto NBFCs may see lower impact and HFCs should be least affected, it said.
“SBI Cards/ BAF may see approx.400bps/220 bps hair to Tier 1 AUTO, but both are well capitalized and have higher ROEs (low capital consumption). IIFL (standalone entity)/ABFL may see 50-80 bps hair. to the tier 1 lipo, which may lower its tier 1 to 13 per cent / 15 per cent. IIFL may need to infuse capital into the stand-alone entity; at ABFL, the next phase of capitalization may progress,” it said.
Topline may moderate if NBFCs slow growth in unsecured segments or see a rise in funding costs. SBI Cards faces the highest Tier I CAR drift and the highest reliance on bank funding, it said.
Impact on fintechs
Tightening of lending partners may affect contribution by 2-3 percent, it said. “For Paytm’s lending partners, higher financing costs and increased capital requirements will affect product profitability in BNPL/PL. They may respond by tightening credit standards and/or moderating growth from high levels now. We are also mindful of the pricing environment and capacity. of Paytm to pass through an increase in finance costs. In our base case earnings, we anticipate an increase in consumer spending for normalization from an estimated 90 percent in FY24E to 40 percent in FY25 and 35 percent in FY26,” Jefferies said.
Any additional 10ppt slower spending growth (versus base case) in FY25 / 26E may lead to a 5-10 percent impact on loan proceeds and a 2-3 percent impact on overall contributions, which may also impact balance timelines. Paytm may be able to make up for this with a faster increase in trade financing.