Ujjivan Small Fin, IDFC First: Financials rally on RBI's ownership proposal

Shares of financials including, banks, non-banking finance companies (NBFCs) and microfinance institutions (MFIs) were in focus amid up to 20 per cent rally on the BSE in the early morning trade on Monday as the Reserve Bank of India's (RBI's) internal working group, which reviewed ownership guidelines, proposed sweeping changes in the corporate structure of Indian private sector banks.

Key recommendations that have been suggested include raising of cap on promoters stake to 26 per cent from 15 per cent currently, considering NBFCs with asset size of over Rs 50,000 crore and large industrial houses to apply for banking license, clarity on Non operating financial holding company (NOFHC) structure providing exit for financials without group entities. Comments on the report are to be submitted by January 15.

Among the individual stocks, Equitas Holdings and IDFC were locked in the 20 per cent upper circuit at Rs 63.40 and Rs 40.10, respectively on the BSE. Ujjivan Financial Services, Ujjivan Small Finance Bank, IDFC First Bank, AAVAS Financiers, Shriram City Union Finance, Bajaj Holdings & Investments and IndusInd Bank were up between 5 per cent and 16 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.06 per cent at 43,855 points at 10:00 am.

ICICI Securities believes these steps are in the right direction and would be beneficial for customers and the banking sector, as a whole, in the long run. However, the recent rally in stock price of financials has largely played out near term positives, it said.

Nifty Bank and Nifty Financial Sector indices pared gains later and were down 0.45 per cent each after advancing nearly 1 per cent and 0.7 per cent, respectively in the opening deals.

Over the last five years, private sector banks have rapidly gained market share to around 30 per cent (2020) from around 18 per cent (2015), and we see this trend accelerating at a faster pace now, said analysts at Motilal Oswal Financial Services in sector update.

"Mergers & acquisitions opportunities may also increase in the system as corporates with deep pockets may adopt this route rather than building from scratch. Fit and proper criteria, increased surveillance on group entities, the maximum allowed promoter shareholding, and regulatory cost of CRR, SLR, etc. have been the key considerations thus far for applying and granting banking licenses," it said.

The brokerage firm further said it remains to be seen how corporate India, NBFCs, and the RBI would approach the matter this time around, once final guidelines are out. Prima facie, we see IDFC Ltd, Bajaj Finance, L&TFH, Equitas, and Ujjivan to be key beneficiaries.