Bank Recap A Risk To NBFCs With Low  Funding Exposure, Says Credit Suisse

An expected rate cut by public sector banks after the government’s recapitalisation is likely to pose a threat to non-banking finance companies, especially those which have less funding exposure to these lenders, according to a Credit Suisse report.

The lenders would target growth and become aggressive with rates, mainly in the home loans segment, as the salaried employee segment has been strong for state-run banks, it added.

Here's what Credit Suisse says about NBFCs:

• Expecting an impact on NBFCs with lower bank funds, it downgraded LIC Housing Finance Ltd. to 'Neutral' with a target price of Rs 600. It is currently trading at Rs 612.2 apiece.
• Likely beneficiaries Shriram Transport Finance Ltd., Mahindra and Mahindra Financial Services Ltd. and Shriram City Union Finance Ltd. have been rated as 'Outperform'.
• Target price set for these companies are: Shriram Transport- Rs 1,600 apiece, M&M Financial Services- Rs 480 apiece and Shriram City Union Finance- Rs 3,125. Stocks of these companies are currently trading at Rs 1,294.2 apiece, Rs 434.4 apiece and Rs 2,258.5 apiece respectively.
• State-run banks focus on the salaried home loan borrowers, but there is scope for growth in lending to non-salaried category.
• Credit Suisse initiated coverage on PNB Housing Finance Ltd. with an 'Outperform' rating with a target price of Rs 1,780. The stock is trading at Rs 1,441.2 apiece.
• Credit Suisse also retains their ‘Outperform’ rating on Indiabulls Housing Finance Ltd.
• On the back of recent improvements in L&T Finance Holdings Ltd., Credit Suisse initiated coverage with 'Neutral' rating with a target price of Rs 210, trading at Rs 199.5 apiece today.