RBI's Leverage Crackdown Has a Flip Side — These Financial Stocks Are Quietly Winning

RBI's Leverage Crackdown Has a Flip Side — These Financial Stocks Are Quietly Winning

When regulators tighten the screws, not everyone bleeds equally.

The Reserve Bank of India's ongoing campaign to rein in leverage across the financial system has dominated headlines this week, with fresh concerns about liquidity draining out of markets. But while most investors focus on the pain — and there is real pain — the filing trail reveals a quieter story: some financial companies aren't just surviving the regulatory squeeze, they're thriving because of it.

What the RBI did

The RBI has been systematically tightening leverage in the financial system. In November 2023, it increased risk weights on unsecured retail loans from 100% to 125% and raised risk weights on bank lending to NBFCs by 25%. Per Bajaj Finance's FY24 annual report, the RBI took this "proactive regulatory measure" to address components of consumer credit growing too fast. SBI Cards noted in its Q3 FY24 earnings call that its "cost of borrowing from banks is higher by about 25-30 bps post the RBI circular."

The RBI partially reversed course in February 2025, restoring NBFC risk weights based on external ratings. Per Bank of Baroda's FY25 annual report, this restoration "should boost credit growth to this sector" from FY26 onwards. But the broader regulatory direction remains clear: the RBI wants financial institutions to fund growth with deposits and equity, not borrowed leverage. System-wide LCR requirements also hit 100% from December 2024, forcing all lenders to maintain adequate liquid buffers.

Who's getting squeezed

The math is straightforward. Every 25-basis-point increase in borrowing cost compresses net interest margins for unsecured lenders. SBI Cards absorbed a 25-30 bps cost increase by their own admission.

Bajaj Finance, India's largest NBFC, reported net interest income of ₹18,994 crore in H1 FY26, growing 21% year-on-year per its board outcome filing. Strong, but interest expenses also rose 20% to ₹10,465 crore over the same period — showing even the strongest players face margin pressure. Fee income growth of 22% helped cushion the blow, but the era of cheap leverage fueling double-digit AUM growth is over.

The quiet winners

The same regulatory pressure that squeezes leveraged lenders creates a structural advantage for institutions with strong deposit franchises and secured lending books. Here's who's benefiting.

IDFC First Bank has built perhaps the most dramatic deposit transformation story in Indian banking. Per its Q4 FY26 investor presentation, the bank's CASA ratio improved from 8.7% in December 2018 to 49.8% by March 2026. Net interest margin stands at 5.75% for FY26, up 265 basis points from its starting point. When the RBI makes borrowed leverage expensive, banks sitting on cheap CASA deposits gain a widening cost-of-funds advantage. Their net interest income for H1 FY26 came in at ₹10,046 crore, up 5.9% year-on-year — modest growth, but built on the stickiest funding base in the sector. Bank of Baroda posted domestic CASA growth of 6.4% — a benchmark among public and private sector banks alike, per its Q4 FY25 earnings transcript. The bank delivered quarterly PAT exceeding ₹5,000 crore, with a stable credit-deposit ratio of 83.59%. Current deposits alone surged 19.4% year-on-year to ₹1,43,729 crore as of March 2025, per its annual report. In a world where the RBI is penalizing borrowed leverage, Bank of Baroda's deposit-funded lending machine becomes more valuable. Bajaj Housing Finance demonstrates what a well-capitalized secured lender looks like in a tightening cycle. Per its Q4 FY26 investor presentation, AUM stands at ₹1,33,412 crore with 23% year-on-year growth. The numbers that matter: GNPA of just 0.27%, NNPA of 0.11%, and a capital adequacy ratio (CRAR) of 23.15% — more than double regulatory minimums. Return on assets sits at 2.3% with credit cost at just 0.19%. When regulators crack down on undercapitalized competitors, fortress balance sheets gain market share by default. Disbursements grew 23% year-on-year in Q4 FY26 to ₹17,506 crore. Cholamandalam Investment and Finance, a secured-lending-focused NBFC, maintained its LCR above 100% across every single daily observation from Q4 FY25 through Q4 FY26, per its investor presentations. Vehicle finance AUM grew 18% year-on-year, and PAT reached ₹1,267 crore in Q4 FY25 — up 20% year-on-year. Vehicle and home loans carry much lower risk weights than unsecured consumer credit. When the RBI penalizes unsecured lending through higher risk weights, Chola's secured loan book faces a fraction of the regulatory headwind.

What retail investors should do

The RBI's leverage crackdown is structural, not cyclical. The central bank has shown it will escalate when it spots systemic risk building, and it will ease selectively (as it did with NBFC risk weights in February 2025) once the message lands. This creates a durable quality filter in the financial sector.

Don't sell "NBFC" as a blanket category. Instead, look at three signals in the filings: capital adequacy ratios above 20% (Bajaj Housing Finance sits at 23.15%), GNPA below 0.5% (signaling disciplined underwriting), and rising CASA or retail deposit bases (IDFC First Bank's trajectory from 8.7% to 49.8% is instructive). The institutions that don't need leverage to grow — the ones funded by depositors rather than wholesale borrowing — are the ones that compound through regulatory cycles rather than getting whipsawed by them.

Data sourced from company filings on NSE via Xaro.