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Event update: Financials; Credit Policy – No NBFC specific measure, leverage ratio may impact a few state banks

Credit policy summary: RBI cut the repo rate by 25bps. In a positive surprise, RBI changed the policy stance from neutral to accommodative which means that there will be no more rate hikes this fiscal. Financials sold off in a big way following the policy despite change in stance given that there was not even a mention of the NBFC liquidity issue let alone measures. The RBI has set up an internal committee to give recommendations on improving the liquidity framework.

Leverage ratio: RBI has set the minimum leverage ratio at 4% for systematically important banks and 3.5% for other banks. Leverage ratio is the Tier 1 capital divided by total exposure. Canara, PNB and Union have amongst the lowest leverage ratios due to low Tier 1 capital.

Key highlights of RBI’s post policy concall with analysts:

• RBI is happy with transmission of the last two rate cuts.
• Expects a complete transmission of today’s cut. If necessary will have a discussion with banks
• RBI refused to comment on the NBFC sector. The RBI refused to comment on whether there will be a separate liquidity window for NBFCs.
• There is no change in the listing norms for small finance banks.
• The universal banking licenses are not on hold for 3 years. The window for on tap banking licenses on universal banking is still open. Yesterday a report in DNA suggested that these licenses have been shut for 3 years.

Going by the policy documents and Q&A it appears that there may not be any separate window for providing liquidity to NBFCs.

We maintain our preference for safer banks or banks that are almost through with their clean up. HDFC Bank, ICICI Bank and AXIS Bank remain our key picks.