IDFC key beneficiary of new RBI norms; reiterate Buy: Anand Rathi

MUMBAI: Anand Rathi Securities has recommended to buy shares of IDFC as it is likely to be a key beneficiary of the new non-banking finance company ( NBFC) norms issued by the RBI, indicating lower risk weights for bank lending to IDFC.

“We maintain Buy, as IDFC is poised to benefit from infra lending opportunities, backed by credible risk management skills and synergies from its asset management & investment banking,” said the brokerage firm.

The RBI has introduced a new category of NBFC - Infrastructure Finance Companies (IFCs), where the company has at least 75% of its assets as infra loans, is non-deposit accepting, has a networth of +Rs3 billion, a minimum credit rating of A and a capital adequacy of 15% (Tier-I of 10%).

Bank loans to IFCs will now attract risk weights based on their credit rating, compared with 100% earlier. This is positive for IDFC, whose risk weight will fall from 100% to 20%, lowering its funding costs, improving its spreads. IDFC’s bank borrowings are 16.2% of its total liabilities.

The brokerage feels that better credit off-take and leverage to improve RoE. “Rising demand for infra loans, contribution of fees, and higher leverage on core equity from 5x to 6x, is likely to improve RoE to 17%.”

Shares of the company were trading at Rs 148.70, higher by 0.41 per cent on the NSE.