Key Points

The report interprets the policy changes as reflecting a supportive stance towards NBFCs and infrastructure financing sectors.

Morgan Stanley noted that the RBI has removed the proposed restriction on overlaps in businesses undertaken by a bank and its group entities in the final regulations on Forms of Business and Prudential Regulation for Investments. These regulations are expected to be released shortly.

"We think this is positive for bank promoted NBFCs in our coverage." the report stated.

In another measure, the RBI has proposed to reduce risk weights on NBFC lending to operational, high-quality infrastructure projects. The move is aimed at lowering the cost of infrastructure financing and is expected to benefit infrastructure-focused NBFCs such as Power Finance Corporation (PFC) and REC Ltd.

Morgan Stanley said both PFC and REC are well-capitalised and self-sustaining businesses, suggesting that while the move is structurally positive, the immediate financial benefit may be limited.

"We think this is positive for our coverage infrastructure lending NBFCs - PFC and REC. However, we also note that both are well-capitalised and self-sustaining businesses" noted the report.

The investment bank said these measures underscore the RBI's balanced regulatory approach, which supports credit flow to key sectors like housing and infrastructure while maintaining prudential oversight.

According to Morgan Stanley, the latest policy actions could help strengthen investor sentiment in the NBFC space and enable greater strategic flexibility for bank-promoted entities.

In a unanimous decision last week on 1st October, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the policy repo rate unchanged at 5.5 per cent in its policy announcement.

With this decision, the Standing Deposit Facility (SDF) rate also remains unchanged at 5.25 per cent. The Marginal Standing Facility (MSF) rate and the Bank Rate continue to stand at 5.75 per cent.

The Standing Deposit Facility (SDF) rate is the interest rate the RBI pays to banks that deposit their surplus, uncollateralized funds with the central bank on an overnight basis.

On the other hand, the Marginal Standing Facility (MSF) rate refers to the penal interest rate that scheduled commercial banks pay when they borrow overnight liquidity from the RBI as a last resort, particularly when funds are not available in the inter-bank market.

- ANI