Shares of NBFCs and microfinance institutions (MFIs) surged mid-day after the Reserve Bank of India (RBI) reversed its November 2023 decision that had raised risk weights on bank finance to NBFCs and MFIs by 25 percentage points. The move, announced on Tuesday, is expected to unlock liquidity, lower borrowing costs, and boost credit flow in the sector.
Top Gainers in Mid-Day Trade
- AU Small Finance Bank jumped 6.04% to ₹555.90, leading the rally in the NBFC sector.
- Cholamandalam Investment & Finance rose 4.66% to ₹1,431.55, benefiting from improved funding conditions.
- Shriram Finance gained 4.30% to ₹598.95, as investors reacted positively to the regulatory changes.
- Poonawalla Fincorp advanced 3.91% to ₹287.00, supported by better credit access.
- LT Finance Holdings climbed 3.69% to ₹138.42, reflecting optimism in lending growth.
Brokerage View: Morgan Stanley and Nomura Maintain Positive Stance on NBFCs
Morgan Stanley remains bullish on NBFCs and MFIs, citing the RBI’s decision as a key catalyst for improving cost structures and expanding lending capabilities. The brokerage views Aditya Birla Capital (ABCL), PNB Housing Finance (PNBHF), Shriram Finance (SHFL), and Bajaj Finance (BAF) as major beneficiaries and maintains Overweight ratings on these stocks.
Meanwhile, Nomura sees the reversal of risk weights as a direct boost to credit flow from banks to NBFCs, particularly in the MFI segment. The brokerage expects Bandhan Bank, AU Small Finance Bank, and IndusInd Bank to benefit the most due to their high exposure to microfinance lending.
However, analysts remain cautious on unsecured lending, as the risk-weight increase on personal loans and credit cards has not been reversed.
With improved capital adequacy ratios and enhanced liquidity, NBFCs and MFIs are well-positioned to capitalize on better funding conditions, expand their loan books, and drive profitability in the coming quarters.
