The market saw a downturn, led by Nifty PSU Bank and Nifty Bank, which dropped by 2.39 percent and 1.31 percent, respectively.
The recent decision by the RBI to impose higher risk weights on credit card and unsecured loans is expected to immediately increase the capital requirements for banks and NBFCs.
Vaibhav Vidwani, a Research Analyst at Bonanza Portfolio, suggests that this move will elevate capital costs, possibly leading banks to pass on these increased expenses to borrowers. Notably, there's a robust demand for credit in certain segments like unsecured retail loans.
Consequently, borrowers might experience a slight uptick in the cost of credit, but this adjustment is unlikely to significantly impact the profits of financial institutions.
SBI, being the largest public sector bank, faced a substantial impact due to its considerable retail exposure, accounting for 14 percent of its book. Meanwhile, most NBFCs witnessed a decline on Friday.
In terms of market performance, SBI, Axis Bank, ONGC, BPCL, and Bajaj Finance were among the prominent losers on the Nifty index. Conversely, SBI Life Insurance, HDFC Life, Apollo Hospitals, Larsen & Toubro, and Hero MotoCorp were among the gainers.
Nagaraj Shetti, a Technical Research Analyst at HDFC Securities, noted that after showing weakness from recent highs, Nifty demonstrated a range-bound movement with a bearish inclination on Friday. Despite an initial attempt at recovery, the market remained confined within a range for the majority of the session, slipping again towards the end.
Vinod Nair, Head of Research at Geojit Financial Services, highlighted that the RBI's decision to heighten risk weights for unsecured loans had a dampening effect on banking stocks and caused a temporary disruption in the broader indices' resurgence.
(With Agency Inputs)