Banks raising rates in sync with policy NBFC’s borrowing costs

December 16, 2022

Borrowing costs of non-bank lenders are expected to rise further, with banks increasing their lending rates in line with the overall monetary policy rate, say analysts.

“A lot of NBFCs increased their borrowings from banks, and banks, given their liquidity, did not increase their lending rates in line with the overall policy rates in the first half of FY23,” R Srinivasan, vice president and sector head, financial sector ratings, Icra, said in a webinar on Thursday.

“As such, NBFCs have been able to arbitrage on this opportunity to limit the increase on their cost of funds. But, from Q3FY23 onwards, we can expect the average cost of funds for NBFCs to increase more steeply when compared to what we had seen in the first half of the year,” he said.

Broadly, Icra expects the cost of fund of non-bank lenders to rise by 50-60 basis points going ahead. It may be mentioned that incremental borrowings have already risen by 100-150 basis points since April.

The latest data from the Reserve Bank of India (RBI) showed that bank loans to NBFCs rose 38% year-on-year in October, indicating that NBFC borrowings from banks were sizable.

This jostle for funding among NBFCs is accentuated by the fact that a large number of these shadow lenders cannot raise public deposits. In light of this, the impact of higher cost of funds on the net interest margin of non-bank lenders will be a key monitorable, say analysts.