Shares of Cholamandalam Investment and Finance Company Ltd gained 3.45% to ₹1,415.00 on Tuesday after the Reserve Bank of India (RBI) announced a reduction in risk weights for bank financing to non-banking financial companies (NBFCs) and microfinance institutions (MFIs). The move is expected to unlock liquidity and boost credit availability, benefiting NBFCs with significant exposure to the microfinance sector.
RBI’s Policy Shift and Its Impact
The RBI reversed its November 2023 notification, which had imposed an additional 25% risk weight on bank loans to NBFCs and MFIs. However, the regulator has kept the risk-weight increase from 100% to 125% unchanged for personal loans and credit card outstandings by NBFCs. Lower risk weights mean that banks need to hold less capital as a buffer, increasing their lending capacity and easing financial constraints for NBFCs.
Since the November 2023 risk-weight hike, NBFCs and MFIs had faced a slowdown in credit growth due to stricter capital requirements. The reversal is expected to stimulate lending and improve liquidity conditions in the sector.
Stock Performance and Market Reaction
Cholamandalam Investment’s stock rose to ₹1,415.00, marking a 3.45% increase from its previous close of ₹1,367.80. The stock has traded in a day range of ₹1,400.50 – ₹1,439.95. The company’s market capitalization stands at ₹1.19 trillion, with a P/E ratio of 29.27 and a dividend yield of 0.12%.
Analyst View on RBI’s Move
Market analysts believe that the RBI’s latest move is a sentimentally positive development for NBFCs, as it restores previous risk weights and provides a boost to credit expansion. With increased access to bank funding, NBFCs like Cholamandalam Investment could benefit from improved liquidity and growth prospects.
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