Bajaj Finance, SBI Cards, and FinNifty Stocks Surge Up to 5% Following RBI's Optimistic Outlook on Unsecured Lending

Prominent financial figures had a strong day on Friday. Shares of Bajaj Finance and SBI Cards rose by as much as 4%, following upbeat comments from RBI Governor Shaktikanta Das. He shared that stress in unsecured loans and credit card debt is easing, a welcome sign for the market.

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How the Market Reacted

The Nifty Financial Services Index (FinNifty) jumped 2% to hit an all-time high. Bajaj Finance led the charge with a 4.2% surge, while SBI Cards followed closely behind with a 3.5% gain. HDFC Bank, ICICI Bank, and Axis Bank also added to the rally, gaining between 1.5% and 2.3%.

Behind this market boost was the RBI's surprise move: a 50 basis point cut in the repo rate and a 100 basis point drop in the Cash Reserve Ratio (CRR). This marked the central bank's first rate cut in over a year and a shift from an "accommodative" to a "neutral" policy stance. Translation? The RBI aims to support economic growth without fuelling risky lending.

What the RBI Said About Unsecured Lending

According to Governor Malhotra, the RBI's earlier interventions are working. Unsecured personal loans, which were growing at a rate of around 30% year-over-year, have now slowed to 23%. That's a big deal.

In November 2023, the RBI increased risk weights on unsecured consumer loans and credit card debt by 25 percentage points. This made banks and NBFCs think twice before handing out easy credit.

Malhotra stressed that the current credit growth is "healthy and broad-based," driven more by genuine demand than by careless lending. That calmed fears of a credit bubble.

How Financial Institutions Are Adjusting

This new environment has forced lenders to rethink their strategies. Take Bajaj Finance, for instance. They've seen more business and better operational efficiency in Q2 FY25, but they're still dealing with higher loan losses, especially in urban microfinance and small business lending.

To manage risk, Bajaj is tightening its underwriting standards, particularly for borrowers who are juggling multiple unsecured loans. In their recent earnings call, management confirmed that they'll continue to grow but will lean more toward secured or semi-secured loans in the future.

SBI Cards is also feeling the pressure. The company's Q2 profit dropped by 33% due to rising provisions for bad loans. Its GNPA (Gross Non-Performing Assets) climbed to 3.27% in September 2024 from 2.43% a year earlier. Now, SBI Cards is reviewing its credit card approval process, particularly for customers in lower-income brackets.

What Analysts Are Saying

Analysts think the RBI made the right call. Moody's even called the move "credit positive," stating that higher capital requirements will strengthen the financial system and encourage more prudent risk-taking.

"There may be a dip in loan growth now," said senior economist Anjali Verma, "but protecting financial stability is worth it in the long run."

Bigger Picture and What's Ahead

Inflation is under control, and GDP is holding steady, so the RBI is expected to stay on a balanced course. RBI Governor Shaktikanta Das emphasised that banks are well-capitalised and have solid asset quality across the board. In short, there's no immediate sign of systemic risk.

The slowdown in unsecured lending isn't a red flag; it's a reset. Analysts have been warning about the rapid growth in this area, particularly among younger consumers who are relying heavily on credit. Now, lenders are likely to focus more on better underwriting and more innovative use of data.

Fintechs and digital non-banking financial companies (NBFCs) may face a more challenging road ahead. Many of them thrived in the boom but now face tighter rules and cooler investor sentiment. Expect to see some consolidations or partnerships with traditional banks as these companies adapt to the new landscape.

Final Takeaway

The jump in Bajaj Finance, SBI Cards, and other FinNifty stocks shows that investors are feeling more confident. The RBI's measured approach appears to be paying off; credit risk is easing, and the door remains open for economic growth.

Looking ahead, 2025 could be a year of steady, cautious optimism for the financial sector. With regulators keeping a close eye on risks and institutions adjusting their strategies, the foundation for more sustainable lending is being laid.