North India Statesman
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Banking Stock: The Reserve Bank of India (RBI) has recently announced several major reforms for the banking sector. The purpose of these reforms is to promote debt growth, strengthen banks and simplify the regulatory structure. These measures have strengthened and strengthened the larger-cap of brokerage firms in private banks. Brokerage firms believe that private banks with strong capital base and adequate buffer can benefit the most from these reforms.
Let’s take a look at the ideas of these RBI reforms and brokerage firms:
1. ECL provisions will be applicable from April 2027
The RBI has announced that the new ‘expected loan loss (ECL)’ structure will be implemented from April 2027. Banks will be given a five-year transition period to gradually move towards this model.
Global brokerage firm Jeffaries believes that this period of change will provide relief for public sector banks (PSUs), as they will have time to reduce the impact of a lump sum fee. On the other hand, private banks with strong capital status are likely to bear this fee in the beginning. Nuwama Institutional Equities say that in large banks, Kotak Mahindra Bank may be the most affected due to low capital buffer. On the other hand, this change will have less impact on Axis Bank.
Nuwama says that ECL may have a direct impact on microphinance banks like AU Small Finance Bank, RBL Bank, IDFC First Bank and IndusInd Bank. The current loans of public sector banks may also be affected. Brokerage reported that SBI had declared a loss of ₹ 25,000 crore in its existing loan portfolio about three years ago. Brokerage estimates that this deficit has now come down to less than ₹ 20,000 crore.
2. Proposal to ban group trade overlap was withdrawn again
The Reserve Bank of India (RBI) has withdrawn its proposal to ban overlap in group businesses. This decision will provide more commercial flexibility and regulatory clarity to banks and their NBFC subsidiaries.
Brokerage firm Motilal Oswal says that with this step, banks will be able to make their capital better, classify customers better and make the structure of products better. This will increase the total franchise value of these groups.
Jefferies believe that the move will be particularly positive for HDFC Bank (and its NBFC subsidiary HDB Financial Services), Kotak Mahindra Bank and Axis Bank. Nuwama says that the move will also provide relief to Kotak Mahindra Bank, HDFC Bank, HDB Financial, Canfil Homes, PNB Housing Finance and Bajaj Finance.
3. Basel III Capital Affiliate Criteria Changes
The Reserve Bank of India (RBI) has announced amendment in Basal III capital adequacy norms. These changes are expected to reduce the risk burden on residential real estate (housing) and MSME loans.
Brokerage firm Nuwama says that banks will be able to reach the customers as a reduction in interest rates, which can promote debt growth. Motilal Oswal said that this change would reduce the capital needs of banks and improve capital efficiency, especially banks with large MSMEs and housing portfolio banks.
However, Motilal Oswal said that along with this exemption, banks would need to adopt strong underwriting practices to avoid laxity and potential lapse in risk evaluation.
4. Reduction in risk load for NBFC loan on operational infrastructure projects
The Reserve Bank of India (RBI) has announced a reduction in risk load on loans given by NBFCs for current infrastructure projects. Brokerage firms say that the move may reduce the capital cost of NBFCs significantly, allowing them to fund qualified projects at low interest rates.
Motilal Oswal said that this change will strengthen the infrastructure and NBFCs will get better development opportunities. However, brokerage also warned that the success of the move would depend to a large extent on how clear the definition of “high-quality projects” is and how link is the constant monitoring to avoid potential lapse.
5. RBI has also relaxed these rules to increase debt flow
The Reserve Bank of India (RBI) has also announced a relaxation of several other rules to promote debt hike.
– Indian banks are now allowed to fund the acquisition by Indian corporations.
– Limits of lending on loans securities have been removed.
– The loan limit for shares has been increased from Rs 20 lakh to Rs 1 crore, and the IPO financing limit has been increased from Rs 10 lakh to Rs 25 lakh.
– Ban on giving loans to big borrowers (with loan range of up to ₹ 10,000 crore) has also been lifted.
Brokerage firms say that these measures will promote increase in loans of banks and increase in debt. Jefferies believe that the RBI measures and the time-limit of change are balanced to promote debt growth. Brokerage said that private banks with strong capital adequacy will benefit the most from this change. Jefferies described HDFC Bank, Axis Bank and ICICI Bank as their top choice. In public sector banks, it has given priority to SBI.
Nomura also agrees with Jefferies’ opinion. Brokerage estimates that in FY 2026, bank debt hike may increase from current 10% to 12% annual. Nomura said that investing in large-cap banks is safe as their returns are strong, the risk of asset quality is low and the liabilities are good. Nomura has chosen ICICI Bank, Axis Bank and SBI as its top choice.
