Lenders take heat as RBI cracks whip

Fear of higher capital costs, slower credit growth swept shares of financial firms

- Ram Sahgal & Gopika Gopakumar

Fear of higher capital costs and slower credit growth swept shares of financial companies on Friday, a day after the central bank moved to curb a credit-fuelled consumption spree. Non-bank lenders with large consumer credit books fell the most, while larger, well-capitalised banks were less affected.

The central bank on Thursday raised risk weights against unsecured loans and loans to non-bank lenders, forcing lenders to set aside more capital and apply brakes on such lending. However, since markets were anticipating a rise in interest rates on unsecured loans, analysts believe much of the market impact played out on Friday and that further declines, if any would be limited.

Indices representing financial stocks fell, led by State Bank of India, Axis Bank, ICICI Bank and Bajaj Finance Ltd. The Bank Nifty fell 1.3%, the most in over two weeks, while the Finnifty, which comprises NBFCs and insurers, tumbled 0.9%. The Nifty PSU Bank index comprising SBI, Indian Bank, Bank of India, Punjab National Bank, Bank of Baroda and Canara Bank fell 2.39%, also the most in two weeks.