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Informist, Thursday, Feb. 27, 2025

By Alina Geogy

MUMBAI – Traders placed bullish bets on the derivatives segment of several financial services providers Thursday after the Reserve Bank of India cut the risk weights on bank loans to non-banking finance companies as this move is expected to improve credit flow to these companies.

Traders added long positions to most derivatives contracts of Shriram Finance, Bajaj Finance, and Bajaj Finserv. These three stocks closed 2.6-5.7% higher and were the top gainers in the Nifty 50 index. They also added long positions to AU Small Finance Bank and Cholamandalam Investment and Finance Co., which closed up 5-7% and became the best performing Nifty 200 constituents.

Tuesday, the RBI rolled back the 25% hike in risk weights on bank loans to NBFCs, which was brought forth in November 2023 in all cases where the extant risk weight as per external rating of NBFCs was below 100%. With a lower risk weight on loans, lenders will have to set aside less capital against those loans, which usually result in lower interest rates for borrowers, making it less expensive for individuals or NBFCs to take out such loans.

This move by the RBI can support system credit growth in 2025-26 (Apr-Mar) by 0.5-0.7%, Prabhudas Lilladher said in a report. While this directive could benefit all banks, small finance banks, public sector banks have a higher exposure to non-banking financial companies compared to private peers while small finance banks with a higher exposure to microfinance segment could have an advantage, the brokerage said. Bank of Baroda, Canara Bank, State Bank of India, and Bank of India are expected to be the key beneficiaries among state-owned banks, while IndusInd Bank, Karnataka Bank, and Federal Bank could be the gainers among private banks, the brokerage said.

The restoration of risk weights to once again being based on external rating, for bank lending to NBFCs, is a welcome move benefiting both banks and NBFCs, Ajit Velonie, senior director of Crisil Ratings, said in a note. Revision in risk weights to the levels prior to November 2023 will free up capital for banks and provide additional headroom for credit growth to them, he said. It could also lead to additional credit flow from banks to NBFCs and thus increase funding availability for the NBFC sector, he said.

While there was a bounce-back in banking stocks Thursday, this will not be sustainable at higher levels, Rajesh Palviya, head of technical and derivatives research at Axis Securities, said. However, this bounce-back is temporary amid the selling pressure in the overall market where market participants are opting for the "sell-on-rise" approach, he said.

Meanwhile, the March futures contract of the Nifty 50 closed at a premium of 114.95 points to the spot index. Open interest in this contract rose nearly 38% to 16.83 million, as per provisional data. Thursday, the Nifty 50 ended at its lowest level in eight months at 22545.05 points, down 2.50 points. If the Nifty 50 falls below 22500 points, it could see a further decline to 22300-22400 points, Palviya of Axis Securities said. On the other hand, it may face resistance at 22800 points, he said. 

--Nifty 50 Feb closed at 22543.95, down 38.20 points; 1.10-point discount to spot index
--Nifty 50 Mar closed at 22660.00, down 56.20 points; 114.95-point premium to spot index
--Nifty 50 Apr closed at 22815.00, down 51.80 points; 269.95-point premium to spot index

HDFC Bank, Reliance Industries, ICICI Bank, State Bank of India, Bajaj Finance, Kotak Mahindra Bank, Infosys, Polycab India, Tata Motors, Axis Bank, Larsen & Toubro, IndusInd Bank, Tata Consultancy Services, and UltraTech Cement were the most active underlying stocks on the National Stock Exchange Tuesday.  End

Edited by Deepshikha Bhardwaj

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