Indian shares drop as shadow lenders fall on fears of tighter rules

Indian shares ended at a more than one-week low on Monday, weighed down by non-bank financial companies (NBFCs) on fears over possible tighter rules for the sector, although gains in heavyweights HDFC Bank and Reliance Industries capped losses.

The blue-chip NSE Nifty 50 index fell 1.06% to close at 14,281.3, while the benchmark S&P BSE Sensex was down 0.96% at 48,564.27. Both indexes touched their lowest closing level since Jan. 7.

The Reserve Bank of India (RBI) is expected to set out proposals this week where it may recommend that bigger shadow banks maintain a statutory liquidity ratio and a cash reserve ratio, which could be a huge cash drain for the sector, Reuters reported on Saturday.

"Any such strict regulations, if implemented at a time when economic growth is very weak, could severely constrain ability of NBFCs to lend and further jeopardise growth," Macquarie analyst Suresh Ganapathy said in a note to clients.

The RBI has been trying to tighten regulatory norms for the sector after the collapse of India's largest shadow lender IL&FS in 2018, as the sector also recovers from a coronavirus-led slowdown.

Shares of the country's largest mortgage lender HDFC fell 2.5%, while Bajaj Finance and Bajaj Finserv dropped over 3%.

The Nifty Metal Index was the worst performing index, falling 4.1% to its lowest since Jan. 4.

HDFC Bank ended up 1.1% at a record closing high, after the top private-sector lender on Saturday reported strong profit and loan growth for the December quarter.

India's most valuable company Reliance Industries advanced 2.4%. The conglomerate plans to embed its ecommerce app JioMart into WhatsApp within six months, financial daily Mint reported.

Dewan Housing Finance Corp rose 5% after the company's creditors voted for a 372.5 billion rupee ($5.09 billion) takeover bid by the Piramal Group for the troubled shadow lender.

 

(Reporting by Nallur Sethuraman and Chris Thomas in Bengaluru; Editing by Rashmi Aich and Arun Koyyur)