Shares of non banking finance companies (NBFC) surged on Monday after a panel of the Reserve Bank of India (RBI) suggested measures to further regulate and strengthen the NBFC sector. Market participants added that the draft guidelines for licensing of new banks in the private sector also lifted investor sentiments as the guidelines did not mention anything negative in regard to corporate houses getting banking licence.
The stock of Reliance Capital rose over 13% in the intra-day trade soon after RBI released the report, before ending the day at R377.65 or 9.72% higher. Similarly the shares of IFCI closed at R39, gaining 11.25% after climbing as much as 13.67% during intra-day trade. The shares of IDFC and Shriram Transport Finance Company rose 5.72% and 4.27%, respectively on the Bombay Stock Exchange on monday.
“The proposed guidelines for the NBFC sector will ensure that these entities will function in line with banks with more transparency and regulation. This will help NBFCs to strengthen themselves, which are otherwise quite vulnerable due to their exposure to various sectors. Market has reacted positively to those guidelines,? said Deven Choksey, MD, KR Choksey Securities.
The RBI panel has proposed to impose a higher risk weight of 150% for capital market loans and 125% for commercial real estate loans by such NBFCs. The panel also proposed to improve a host of disclosure and risk management norms for NBFCs.
“The additional provisioning recommended by the RBI panel for NBFC sector will have a negative impact on them,? said Dipen Shah, head of fundamental research at Kotak Securities. However Shah attributed the sharp surge in NBFC stocks to the draft guidelines released by RBI for licensing of new banks and a sharp bounce back in the market. ?Street sentiment was upbeat on expectation that some of these NBFCs might get a banking license. This will help them reduce the cost of deposits as they will be able to raise deposit from retail customers,? Shah said.
