Liquidity surge to propel NBFCs with strong fundamentals: Shweta Daptardar

"See things have been sort of leading in a very positive direction even for MFIs. But we have to be cognisant of the fact that the business metrics are still not holding up well," says Shweta Daptardar, Elara Capital.

How is it that you are reading into RBI guidelines, firstly for gold financing and how much of an impact it is going to have on overall disbursements?
Shweta Daptardar: Essentially, these RBI lending norms which have been relaxed especially for gold loan and gold financiers apparently also bodes well for microfinancers because largely the dilution from the draft guidelines now towards relaxation has happened in the lower ticket segment which is below 2.5 lakh ticket segment, where even microfinance borrowers are proactive. So, a couple of things which bode really well primarily for gold financiers.

One is revision in LTV from 75% to 85% for the loan sizes up to 2.5 lakhs. Also, lower credit appraisal for loans up to 2.5 lakhs or rather stringent processes will be applicable only for loans about 2.5 lakhs. And last but not the least, while the LTV consistency has to be maintained throughout the tenure of the loans, but given the fact that the LTVs per se have been revised higher, so this will have positive bearing on credit offtake on the gold loan side for these financiers.

And also, because of lower appraisals and less of stringency in terms of processes, that would directly imply that turnaround time will be quicker, faster, so net-net very positive as far as gold financers are concerned. It will also have certain positive impact on the microfinance because there has been overlap across these borrower segments.

Let us talk about the regulatory part of this new framework that we have seen. The draft had other recommendations as well as the likes of monitoring of the end usage of loans periodically by respective lenders. Now lenders will make an annual disclosure of the loan breakup, LTV, and the percentage of GNPA. What are you making of this tightening of regulation on this front?

Shweta Daptardar: So, like I said, the tightening or the stringency is largely for loans above 2.5 ticket size and see the latest data that has been incoming for past one quarter, there has been certain delinquencies that have been observed in higher ticket segments than the lower ticket segment. So, that is where this is pivoting towards slightly higher loan ticket size. Having said that, like mentioned, while the LTVs have been revised on the higher side, this will have positive bearing on the disbursement for gold financiers and only the monitoring of priority sector loans have been slightly on the stringency side or those processes have been tightened, but otherwise net-net, this looks positive and bodes well for both Muthoot and Manappuram as well as IIFL gold loans.

How much does the RBI's revised qualifying assets criteria for NBFCs that is microfinance from 75% to 60% will help the sector to diversify and expand its asset and improve the financial position of the MFIs?
Shweta Daptardar: So, yes, you are right. See things have been sort of leading in a very positive direction even for MFIs. But we have to be cognisant of the fact that the business metrics are still not holding up well.

So, in the MFI space now the focus has moved from credit quality challenges to credit growth challenges. Even if you look at the latest crif data that was released say a fortnight ago, it clearly highlighted that the 380,000 odd crores segment, the microfinance segment, has seen decline sequentially in terms of loan growth and at least for two quarters the business pressures sustained because of time and again regional challenges, also FPIs have been preoccupied with strengthening their balance sheet in terms of newer risk or inviting newer troubles on the balance sheet.

And we have to be also cognisant of the fact that almost 60,000 odd crores of total business has been wiped off of the microfinance overall portfolio in this down cycle. So, recouping that is definitely going to take a while. But yes, having said that the incoming data is slightly turning positive but apparently this is not sufficient enough to call out on whether the microfinance challenges are completely behind. There is still time for that.

Also help us understand what you are making of this repo rate cut and CRR cut that we have seen by the RBI because if you take a look at their inflation projections for quarter four FY26, the projection is 4.4 which is slightly above our 4% band. Do you somewhere believe the RBI has already anticipated this frontloading to lead to surplus liquidity situation in the economy and perhaps there could be some rate action when we get closer to quarter four of FY26.
Shweta Daptardar: Yes, so you are right partially. So, apparently RBI has done lot of frontloading in terms of liquidity push and simultaneously a massive repo rate cut. Both these situation bodes well for the credit growth scenario in the system and this largely holds more positive for non-banking financial companies because this would also mean now banking system would be becoming slightly more supportive in terms of funding towards NBFCs.

So, in the interim periods at least for one or two quarters things really look up in terms of credit growth both for banks and NBFCs. Having talked about inflation estimates which have been slightly put on the higher side for the forthcoming periods, so yes, the larger part of rate cuts now are behind and as RBI has also maintained a neutral stance and depending upon the incoming data the further steps will be called out for, but as on today, at least for two to three quarters NBFCs look slightly in a better position than what they were before this monetary policy. Having said that, we are positive on NBFCs, only the ones which are strong on balance sheets in terms of liquidity and which are posting or are poised to post a strong earnings profile. So, we will put bets on these kind of sets.

So, what is the list like? I mean, we were just wondering whether there is going to be that customer shift from companies having a higher reset period like say an LIC Housing Finance into ones which have a lesser reset period. What is the list of your preferred list of banks and NBFCs now?
Shweta Daptardar: So, from the perspective of the monetary policy especially, so certainly repo rate cuts on a massive scale bodes well for consumer financiers, gold financers, basically small tenure ticket size loans, even housing financiers for that matter and, of course, depending upon what the liability or the asset mix is. But having said that this looks positive more for Bajaj Finance. We like even now definitely Muthoot Finance after the gold lending easing of norms. We also like SBI Card, at least for the interim periods although they will definitely face challenges in terms of asset quality and we also have our bets on affordable housing finance space. So, yes, for at least for next nine months NBFCs given the kind of liquidity boost in the system definitely stands positive.