Public sector lender Bank of India is expecting a 40 basis points (bps) moderation in its capital to risk weighted assets ratio (CRAR) due to the Reserve Bank of India’s (RBI) circular on rise in risk weights across personal loans, credit cards and bank loan to non-banking finance companies (NBFCs), MD & CEO Rajneesh Karnatak told FE. The bank’s CRAR stood at 15.63% as of September 30.
“As per our ballpark calculation, our CRAR may get impacted by 40 bps only as we do not have a large personal loan and NBFC loan book,” he said.
As on September 30, Bank of India’s personal loan and credit card loan book stood at around Rs 8,500 crore, which is 1.5% of its overall global advances, Karnatak said, adding that the bank’s exposure to NBFCs—excluding housing financiers—stood at Rs 33,000 crore.
Further, Karnatak said the bank is in the process of raising up to Rs 4,500 crore via qualified institutional placement (QIP) in December which should further help it maintain a healthy capital position. The QIP has a base issue size of Rs 2,500 crore and a green shoe option of Rs 2,000 crore. If the lender is able to raise the full quantum via QIP, the lender’s CRAR would be around 16%, which is well above the regulatory requirement of 11.5%, he said.
“Presently we have a cushion for growth capital,” Karnatak said. “I can lend around Rs 2.9 trillion with a risk weight of around 45% (on NBFC loans) and if I increased risk weight to 100% for all loans, then too I can lend up to Rs 1.2 trillion with the capital cushion that I have,” he said.
Bank of India also does not expect a major impact on its net interest margin (NIM) due to higher risk weights, as it will pass on the rise in capital requirement to lending rates. “Since capital requirement is increasing, the cost to bank also increases and it will be passed on to borrowers by increase in rate of interest,” he said.
While Karnatak did not share the quantum of hike in rate of interest as its asset liabilities committee (ALCO) will meet later this week or early next week, he said for a AAA-rated NBFC where lenders assign risk weight of 20%, the new risk weight will be at 45%, which is over 100% increase in capital allocation and the rate of interest will accordingly be tweaked for end customers.
Karnatak’s comments are in-line with State Bank of India (SBI) Chairman Dinesh Khara’s comments last week, where he said that lenders will likely face up to 60 bps moderation in their CRAR due to RBI’s hike in risk weights across unsecured credit loans. RBL Bank MD, CEO R. Subramaniakumar, too, said he expects a 60 bps moderation in the bank’s CRAR due to the RBI circular.