HDFC Bank, Kotak Mahindra Bank trade flat, ICICI Bank down on RBI’s risk-weight mandate

Kotak Mahindra Bank and HDFC Bank have lower exposure to unsecured consumer loans compared to peers like ICICI Bank and IDFC First Bank

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Shares of private sector lenders like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and IDFC First Bank traded flat on November 21 morning battered down by the Reserve Bank of India’s move to put a leash on unsecured consumer loans late last week. The Bank Nifty index traded mildly in green, up 0.2 percent as against 0.3 percent rise in the Nifty50, as of 10:10am.

Following the RBI directive, shares of HDFC Bank and Kotak Mahindra Bank stayed flat on November 21, but ICICI Bank and IDFC First Bank shares slipped up to 5 percent.

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This performance reflected how investors viewed these banking names with regard to their exposure to unsecured retail lending. As per a Jefferies report, IDFC First Bank’s exposure to personal loans, credit cards, and estimated loans to non-banking financial corporations (NBFCs) stood at 19 percent, 3 percent, and 24 percent, respectively.

On the other hand, ICICI Bank’s exposure to personal loans, credit cards, and estimated NBFC loans stood at 9 percent, 7 percent, and 20 percent, respectively.

Kotak Mahindra Bank and HDFC Bank, however, had lower exposure to unsecured consumer loans compared to peers like ICICI Bank and IDFC First Bank.

Also read: RBI’s tighter unsecured retail lending norms pose no threat to HDFC Bank, Kotak Mahindra Bank: Analysts

The central bank revised its risk-weight for unsecured consumer loans, encompassing personal loans and credit card loans. Consumer credit, excluding housing, education, vehicle, and jewellery loans, will now attract 125 percent risk-weight assets (RWA). Credit cards for banks will see an increase in RWA to 150 percent from 125 percent earlier.

NBFC major Bajaj Finance also suffered as shares tanked as much as 4 percent so far following the revised RBI mandate. The bearish sentiment was further amplified after the central bank suspended its two products – eCOM and Insta EMI Card.

Also read: Bajaj Finance in double trouble from RBI’s risk-weight norms, product ban

Analysts at Morgan Stanley feared that the RBI’s product ban would spell trouble for Bajaj Finance as it restrict its fee-income in the upcoming quarters.

The RBI had earlier increased the risk weight on consumer credit exposure of NBFCs to 125 percent from 100 percent.

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