New norms to benefit NBFCs, stocks rally

Shares of non-banking finance companies (NBFCs) rallied up to 5% on Tuesday after the Reserve Bank of India (RBI) released final norms on requirement for capital adequacy, NPA recognition, and provisioning. The regulator has also released guidelines pertaining to corporate governance, fit and proper criteria for directors, and financial disclosures norms. Brokerages expect limited earnings impact on NBFCs, as the RBI has provided sufficient time to adjust for these norms.

“We note that a tightening of regulatory norms leads to stock out-performance, particularly in the case of banks. Over the longer term, we expect the RBI’s move to strengthen NBFCs’ balance sheets to support valuations. We prefer Bajaj Finance, Magma Fincorp, and PTC Financial Services,” said Kaitav Shah, analyst at Anand Rathi. Analysts said the RBI norms were long overdue and overhang was reflected in the stock performance, and now that these have been done away with once and for all, it augurs well for the sector as a whole.