Double bonanza for NBFCs; mid & smallcaps to benefit from RBI rate cut: Experts

The rate cut by the Reserve Bank of India (RBI) will help banks’ to address liquidity issues and at the same time, low cost of funds is likely to boost consumption, suggest experts

The Monetary Policy Committee (MPC), on expected lines, changed its stance to ‘neutral’ from ‘calibrated tightening’ on February 7 in its sixth bi-monthly monetary policy review meeting but what came as a surprise was the repo rate cut of 25 basis points (bps).

The rate cut by the Reserve Bank of India (RBI) will help banks to address liquidity issues and at the same time, low cost of funds is likely to boost consumption, suggest experts. Fall in the cost of funds will also aid lending, so it is positive for banks as well as NBFCs.

“A rate cut of 25 basis points is an act of fine balance between maintaining real income and boosting economic growth. Benign inflation trajectory and low private capex were key enablers for a rate cut, which is good for mid and small-cap companies,” Dharmesh Kant, Head – Retail Research, IndiaNivesh told Moneycontrol.

The RBI has removed 100 percent risk weights for NBFCs and now their risk weights will be as per their rating, which is a positive development for higher rated NBFCs, suggest experts. The future commentary suggests that more cuts are in the offing that will be taken positively by traders and investors.

RBI said that with a view to facilitating the flow of credit to well-rated NBFCs, it has now been decided that rated exposures of banks to all NBFCs, excluding Core Investment Companies (CICs), would be risk-weighted. This will be as per the ratings assigned by the accredited rating agencies, in a manner similar to that for corporates.

“It’s a double bonanza for NBFCs—low cost of funds and a boost in consumption on account of low inflation/high disposal income. What interim Budget 2019 missed for corporates has been largely compensated by the monetary policy committee’s change in stance to neutral. It will bring stability to the financial environment,” Kant said.

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