Banks Upbeat, Nbfcs Cool
Non-bank finance companies (NBFCs) have not been enthused by the Reserve Bank action of reducing the bank rate as they feel that it will not increase availability of bank funds to corporates and other finance intermediaries. However, banks have welcomed the move saying that it will mean low cost for their liabilities.
The cut is likely to push deposit rates down, but will not result in commercial credit pick up, according to the head of a prominent NBFC. But it is unlikely to result in non-food bank credit moving up. Banks are worried about accountability and NPAs and are afraid to take decisions, the NBFC head said. However, welcoming the bank rate cut, Centurion Bank managing director Assisi Sen said deposit rates will immediately come down but a decline in lending rate will take a little more time. On the whole, the cost of banks will come down, he added.
However, credit offtake will not necessarily pick up because of this measure, as the slowdown in credit disbursal was because of low quality of borrowers, Sen pointed out.
According to ICICI Bank chairman PV Maiya, the figures released by RBI last week indicated that while deposits and investments have recorded a large increase, advances have increased at a much lower rate. Banks are paying a rate of 9 per cent on deposits and earning 12 per cent on their investment in government securities on which they do not have to provide for NPAs. He said credit will not pick up with such a measure.
N Venkateswaran of Central Bank said that with reduction in lending rate to follow the reduction in bank rate, many projects will become viable.
However, the treasury head of a leading foreign bank said the demand for bank credit was inelastic to lending rates. A good monsoon may see interest rates going up, he pointed out.
The reduction in interest rates will help lift the bottom lines of companies, which will have a good impact on the stock market, said Aspy Contractor, head of equity research at Ceat Financial Services.
Alpic Finance senior vice-president A K Chatterjee said that, with the lending and refinance rates of the RBI to other banks being linked to the bank rate, these rates will come down. This would bring down the borrowing cost ofthe non-banking finance companies.