Non-deposit taking NBFCs rally as RBI relaxes rules

MUMBAI: Shares of Magma Fincorp, Muthoot Finance and Manappuram Finance surged after the Reserve Bank of India made rules easier for non-banking financial companies (NBFCs) that do not collect public deposits by allowing them to act as business correspondents of banks.

According to analysts, the move is positive for non-deposit taking NBFCs as it will give boost to fee income.

"It has been decided that banks will be permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs," the RBI said in a notification.

So far, NBFCs could not be appointed as BCs, which provide limited services on behalf of banks in unbanked areas.

The RBI said there should be a contractual arrangement between a bank and an NBFC-ND to ensure that possible conflicts of interest are taken care of.

"Customers will benefit the most by RBI norms. We will evaluate the revenue model for acting as BCs," said V Lakshmi Narasimhan, CFO, Magma Fincorp to ET Now.

According to Narasimhan, allowing non-deposit taking NBFCs to act as BCs will help financial inclusion.

Muthoot Finance, which has 60 per cent of branches in rural and semi urban areas, will benefit from improving financial inclusion following RBI’s relaxation of norms.

“There is opportunity to increase fee income for Muthoot Finance,” said George Alexander, MD, Muthoot Finance to ET Now.

Muthoot is targeting 10-15 per cent growth in AUM for FY15 and expects 10-15 per cent profit growth in in the period.

At 12:10 p.m.; Magma Fincorp surged 5.41 per cent, SKS Microfinance gained 3.92 per cent, Manappuram Finance moved 2.36 per cent higher and Muthoot Finance advanced 1.62 per cent.