Fresh challenge to NBFCs

By K. T. Jagannathan

CHENNAI, OCT. 31. The RBI move to bring down the ceiling on deposit rate has come as a bolt from the blue for non-banking finance companies (NBFCs). They are convinced that it will have a significant negative fallout on the industry which is through a prolonged bad phase. Sources said the lower ceiling on deposit rate would make NBFCs much more difficult to access public funds.

The bridge between NBFCs and new generation private banks vis-a- vis deposit rates has narrowed down considerably. The differential in one-year deposit rates between them is around 150-200 basis points. NBFCs, more often than not, provide an incremental rate of around half-a-percentage for every one-year increase in maturity period. Since the ceiling rate has been brought down to 12.5 per cent from 14 per cent (presumably for longer tenure, say three year deposits), this should logically force NBFCs to reduce rates on lower tenure deposits.

Sources, however, felt that this would not happen in reality. They apprehended that the move would force many NBFCs to offer the ceiling rate for lower-tenure deposits as well. This, it was pointed out, would result in mismatch of funds, pushing NBFCs into further peril.

What had upset them the most was that the apex bank had not initiated any matching action on fund supply front to help NBFCs stay afloat. Their inability to access competitive funds would sure to push them to precipice in an environment where the businesses were just evaporating in thin air due to pressures of assorted sorts, these sources said.

Send this article to Friends by E-Mail

Section  : Business
Previous : Telco reduces losses
Next     : Don't attract investments at the cost of workers:
           ILO