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UBS Investment Research
India Banking & Finance Sector
Draft NBFC guidelines
„ Event: Usha Thorat committee report, Not as disruptive as perceived
Usha Thorat Committee which has been reviewing current regulations regarding
NBFCs released its report today. Some of the key recommendations which the
report has proposed are 1) Tier-1 capital ratio increased to 12% from 10% 2)
Stricter compliance for government owned NBFC with existing guidelines 3) NPL
recognition and provisioning norms to be brought in line with banks 4) Liquidity
ratio to be introduced to cover any gaps in 30 day window 5) to be given benefit of
SARFAESI Act 6) RBI to review accounting norms & bring in line with banks.
„ Impact: Negative for NBFCs, positive for gold fincos
In our view higher tier-1 will structurally restrict leveraging capabilities and
therefore RoE in the medium term even though currently all NBFCs have
comfortable Tier-1; gold fin cos have higher risk weights compared to banks for
loan below Rs 100k ticket size, regulation parity with banks would bring down risk
weighted assets. Transitioning to 90 day recognition will lead to higher provisions
in the interim however we believe RBI will allow NBFCs to transition in a phased
manner. PFC & REC will need to make higher provisions to comply with general
provisioning requirements which could impact pre tax earnings by 5-10%.
„ Action: Buy gold finance companies, MGFL (buy rated)
Biggest overhang on gold fincos (MGFL, MUTHOOT) was perceived disruptive
regulatory changes which should now abate. In our view growth and asset quality
risks is the lowest for gold finance companies like MGFL (Buy, PT 77.5). Slowing
credit growth in 2H will help improve liquidity which will be positive for funding
costs. We also like infra finance companies given attractive valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Banking & Finance Sector
Draft NBFC guidelines
„ Event: Usha Thorat committee report, Not as disruptive as perceived
Usha Thorat Committee which has been reviewing current regulations regarding
NBFCs released its report today. Some of the key recommendations which the
report has proposed are 1) Tier-1 capital ratio increased to 12% from 10% 2)
Stricter compliance for government owned NBFC with existing guidelines 3) NPL
recognition and provisioning norms to be brought in line with banks 4) Liquidity
ratio to be introduced to cover any gaps in 30 day window 5) to be given benefit of
SARFAESI Act 6) RBI to review accounting norms & bring in line with banks.
„ Impact: Negative for NBFCs, positive for gold fincos
In our view higher tier-1 will structurally restrict leveraging capabilities and
therefore RoE in the medium term even though currently all NBFCs have
comfortable Tier-1; gold fin cos have higher risk weights compared to banks for
loan below Rs 100k ticket size, regulation parity with banks would bring down risk
weighted assets. Transitioning to 90 day recognition will lead to higher provisions
in the interim however we believe RBI will allow NBFCs to transition in a phased
manner. PFC & REC will need to make higher provisions to comply with general
provisioning requirements which could impact pre tax earnings by 5-10%.
„ Action: Buy gold finance companies, MGFL (buy rated)
Biggest overhang on gold fincos (MGFL, MUTHOOT) was perceived disruptive
regulatory changes which should now abate. In our view growth and asset quality
risks is the lowest for gold finance companies like MGFL (Buy, PT 77.5). Slowing
credit growth in 2H will help improve liquidity which will be positive for funding
costs. We also like infra finance companies given attractive valuations.
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