Saikat Das
Moneycontrol.com
Shares of non-banking finance companies (NBFCs) fell 1-4% on Wednesday on concern that the Reserve Bank of India (RBI) may hike risk weights or provisioning if loans to the sector don't fall. It would increase the cost of borrowings of those companies which may then face margin contraction."If it happens, this will make liquidity tight," the managing director of a south-based large NBFC told Moneycontrol.com requesting anonymity."RBI is concerned by the end-use of funds lent by NBFCs. Their net interest margin will also come down. The provision may be applicable for NBFCs, engaged in lending to real estate companies, and promoter fundings."On Wednesday, Manappuram General Finance closed at
Rs 115.55, down 3.50%; Shriram Transport Finance at Rs 673.55, down 1.5%; Muthoot Finance at Rs 169.50, down 2.75%, Mahindra Finance at Rs 665, down 0.65% and Magma at Rs 74.45, down 0.45%."We are in favour of regulatory tightening of assets," Ramesh Iyer, MD of Mahindra Finance recently told Moneycontrol.com in an interview. "Any balance sheet, which is competent and capable of regulatory changes, is a strong balance sheet. We only hope that NBFCs (with strong ballance sheets) should also be looked at differently," he added.Currently, NBFC loans carry 100% weightage. It means that banks have to set aside Rs 9 for every Rs 100 lent. RBI has mandated 9% minimum capital adequacy ratio for banks. However, for gold loan of upto Rs 2 lakh, the risk weightage is 50%.V Lakshmi Narasimhan, CFO of Basel II-rated NBFC-Magma Fincorp, says "With this status, we enjoy 20% risk weightage. If this status is not withdrawn, we would not be impacted by any rise in provisioning."Manappuram General Finance MD I Unnikrishnan declined to comment without RBI's official announcement."If the risk weightage for NBFC lending is raised, we will have to study the impact. We will see whether we can absorb it or pass it on to customers depending upon the intensity of rise," Jagdish Pai, executive director, Canara Bank told Moneycontrol.com. 
