Bandhan Bank, AU Small Finance Bank Gain on RBI’S Microfinance Loan Relief

Shares of Bandhan Bank and AU Small Finance Bank rallied after the RBI reduced risk weights on microfinance loans from 125% to 75%. The move eases capital pressure, improves lending capacity, and boosts investor sentiment, benefiting banks with high exposure to microfinance.

RBI’s Decision: A Relief for Microfinance-Focused Banks

The RBI recently reduced the risk weight on microfinance loans from 125% to 75%, easing capital requirements for banks.

This means financial institutions no longer need to set aside as much capital for these loans, improving their Common Equity Tier-1 (CET-1) ratios and making capital management more efficient.

Which Banks Benefit the Most?

Banks with significant exposure to microfinance, such as Bandhan Bank, IndusInd Bank, RBL Bank, and IDFC First Bank, gained the most from this regulatory rollback, as per news reports.

The improved capital position allows them to operate more efficiently without the immediate need to raise additional funds.

Impact on NBFCs and the Lending Market

Beyond banks, the reduction in risk weights could also benefit non-banking financial companies (NBFCs). Since banks now have a lower capital requirement for microfinance loans, they may offer lower lending rates to NBFCs, as per news reports.

This would reduce borrowing costs for NBFCs, helping them recover margins and sustain profitability.

Banks’ Share Price Performance

Shares of Bandhan Bank and AU Small Finance Bank (SFB) witnessed positive momentum on February 28, 2025. Bandhan Bank’s stock rose 1.90% to ₹139.49 at 11:30 AM on the NSE, hitting an intraday high of ₹139.65, compared to its previous close of ₹136.89. The stock opened at ₹135.50 and touched a low of ₹134.06 before rebounding.

AU Small Finance Bank, on the other hand, saw a marginal gain of 0.08%, trading at ₹557.15, after reaching a high of ₹565.00 during the session. The reduced capital burden on microfinance loans has improved investor sentiment, particularly benefiting banks with high exposure to the sector.

Conclusion

The RBI’s decision to lower risk weights on microfinance loans has provided a major boost to banking stocks, particularly those with heavy exposure to the sector. With improved capital efficiency, banks like Bandhan Bank, RBL Bank, and IndusInd Bank can now operate more effectively.

Additionally, NBFCs could see a positive ripple effect as banks may extend lower borrowing costs. As the financial sector adapts to these regulatory changes, investors will be watching closely to see how banks and NBFCs capitalise on the newfound flexibility in capital management.

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