If NIMs drop and NPA levels are tightened, it means more provision will be called for because not all NBFCs are really well-capitalised, says Mahantesh Sabarad, Head, Retail Research, SBICAP Securities.
We are hearing that tightened norms for NBFCs are coming and they could be regulated; something which the governor also referred to over the weekend. If tighter norms are coming, could that impact the cost of borrowing, cost of operations, NIMs and spreads for wholesale NBFCs?
One of the distinct features of NBFCs relative to the banking space is that they enjoy higher NIMs. Along with higher NIMs, they also have higher levels of NPAs. Therefore, if tighter norms do come by and the RBI tries to look at reigning in the buoyancy around the financial services companies including NBFCs, probably what they will do is tighten the provisioning norms.