Most NBFCs to adopt wait-and-watch approach to cutting lending rates

Say benefits of bank lending cuts yet to get translated

Most non-banking financial companies (NBFCs) said they would wait and watch before cutting lending rates for their customers. Though banks reduced rates earlier this month, NBFCs say the benefits are yet to get translated for them.

After market hours on Friday, HDFC announced a cut in its retail prime lending rate (RPLR) by 20 basis points to 9.9 per cent, with effect from Monday. But others are not willing to follow the trend.

“Currently our average cost of funds is 10.4 per cent. Our average cost of funds may come down by about 15-20 basis points (bps). We will evaluate and see when we can pass it on to our customers in terms of lending rates. It may be passed on in the next quarter of FY16,” said Sunil Kanoria, vice-chairman of Srei Infrastructure Finance.

Earlier this month, large banks decided to cut their lending rates after the Reserve Bank of India (RBI) nudged them to do so. Since the start of 2015, RBI has cut the repo rate or the rate at which banks borrow from the central bank by 50 bps but banks were slow to follow suit.

“Once banks cut lending rates, it does not get translated immediately for us. When we borrow fresh funds, we will get the benefit of lower rates. Our average cost of funds is about 10 per cent currently,” said the head of a large NBFC who did not wish to be named.

NBFCs, who have been borrowing more through private placement of bonds, are already reaping the benefits of the lower cost of funds but they still plan to go slow with lending rate cuts. The coupon rate for private placement of bond issuances have been falling for quite some time after the start of the interest rate easing cycle as a result of which corporate bond issuances have been picking up.

“Our cost of funds is around 10.5 per cent currently. Our margins have improved by 6 bps in the last quarter. We need to see how much of impact it (the lending rate cuts by banks) will have on us. If there is significant reduction in our cost of funds then we will reduce our lending rates,” said the head of an NBFC which borrows more from the bond market.