Morgan Stanley has raised concerns over the Reserve Bank of India’s (RBI) proposal to ban foreclosure and prepayment charges on floating rate loans to micro and small enterprises (MSEs). The RBI has invited public comments until March 21, 2025, before finalizing the guidelines.
The brokerage warns that if implemented, the proposal could significantly impact NBFCs’ income from foreclosure charges, potentially affecting PAT. Additionally, it could lead to a higher churn rate among borrowers, as they may be more inclined to switch lenders without penalty.
However, Morgan Stanley believes that the industry could mitigate the impact by increasing processing charges and loan spreads marginally across the portfolio.
The report highlights that NBFCs with the highest proportion of floating rate loans against property in its coverage include:
- ABCL (Overweight)
- PNB Housing Finance (Overweight)
- Cholamandalam Investment (Equal Weight)
- Aavas Financiers (Equal Weight)
- HomeFirst (Overweight)
Morgan Stanley continues to maintain its positive stance on ABCL, PNB Housing Finance, and HomeFirst, while remaining neutral on Cholamandalam and Aavas Financiers, as the impact of the new guidelines could be offset by strategic pricing adjustments.
