Shares of L&T Finance Ltd surged 5.55% to ₹140.90 on Tuesday after the Reserve Bank of India (RBI) announced a reduction in risk weights for bank finance to non-banking financial companies (NBFCs) and microfinance institutions (MFIs). The move is expected to unlock liquidity and boost credit availability, benefiting NBFCs that rely on bank funding.
RBI’s Decision 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 risk weight increase from 100% to 125% on personal loans and credit card outstandings by NBFCs remains unchanged. 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
L&T Finance’s stock jumped to ₹140.90, reflecting a 5.55% gain from its previous close of ₹133.49. The stock has traded in a day range of ₹136.60 – ₹142.18. The company’s market capitalization stands at ₹360.18 billion, with an average trading volume of 4.51 million shares.
Analyst View on RBI’s Move
Market experts believe that the RBI’s decision is sentimentally positive for the NBFC sector, as it restores previous risk weights and provides a much-needed boost to credit expansion. With increased access to bank funding, NBFCs like L&T Finance could benefit from improved liquidity and growth prospects.
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