Bandhan Bank Surges as RBI Eases Risk-Weight Norms for Loans to NBFCs

RBI’s Policy Reversal to Boost Credit Flow, Strengthen Microfinance Lenders

Shares of Bandhan Bank soared by up to 8 per cent, reaching Rs 146.38, following the Reserve Bank of India's (RBI) decision to ease risk-weight norms on loans extended to Non-Banking Financial Companies (NBFCs). Effective from April 1, this move reverses the previous tightening measure imposed in November 2023. Analysts and industry experts view this regulatory shift as a significant positive for the financial sector, particularly benefiting banks with strong microfinance lending exposure.

The RBI has reduced the risk weightage on loans given by banks to NBFCs, a decision that is expected to provide substantial relief to both sectors. This policy adjustment will enable banks, especially those with significant NBFC ties, to allocate capital more efficiently. Bandhan Bank, with its extensive presence in the microfinance segment, stands to gain significantly from this regulatory relaxation, allowing it to expand its lending operations more aggressively.

On February 25, the RBI reinstated risk weights on scheduled commercial banks' (SCBs) exposure to NBFCs, addressing long-standing industry concerns over rising borrowing costs. Additionally, in a separate circular, the central bank clarified that microfinance loans will no longer be subject to higher risk weights applicable to consumer credit. While the central bank has maintained other risk weights unchanged, this targeted revision provides a significant boost to microfinance institutions and their banking partners.

The revised risk weights, set to take effect from April 1, 2025, come as a relief to the banking sector. In 2023, the RBI had raised risk weights by 25 percentage points on SCBs’ exposure to NBFCs beyond the externally assigned ratings. This resulted in increased capital requirements for banks, consequently raising borrowing costs for NBFCs. The reversal of this policy underscores the RBI’s more accommodative regulatory stance, which is expected to facilitate smoother credit flow to NBFCs and ease financial constraints within the sector.

The central bank’s announcement on Tuesday to reduce risk weights on bank lending to NBFCs from 125 per cent to 100 per cent is a notable shift in policy. This relaxation aims to enhance liquidity for NBFCs and is particularly beneficial for lenders with substantial microfinance exposure, including IndusInd Bank and Bandhan Bank. By exempting microfinance loans from the higher risk weight category, the RBI has provided a much-needed impetus to the microfinance ecosystem.

Bandhan Bank recently reported a net revenue of Rs 3,926 crore in Q3 FY25, reflecting a 28 per cent year-on-year (YoY) increase from Rs 3,071 crore in Q3 FY24. However, its Net Interest Margin (NIM) declined to 6.9 per cent from 7.2 per cent in the previous year. The bank’s operating profit surged 22 per cent YoY to Rs 2,021 crore from Rs 1,655 crore in Q3 FY24. Despite these gains, Bandhan Bank reported a 41.8 per cent YoY decline in net profit to Rs 426.5 crore for the third quarter ended December 31, 2024.

As a financial institution committed to serving India’s unbanked and underbanked population, Bandhan Bank provides a range of banking solutions, including microfinance, MSME financing, and affordable housing loans. The bank operates with a mission to integrate underserved communities into the formal financial ecosystem. Currently trading at Rs 1,197, Bandhan Bank boasts a market capitalization exceeding Rs 8,018.75 crore. The stock has surged over 52 per cent year-to-date in 2024, reflecting investor confidence in its growth trajectory.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice.