Nbfcs In Another Round Of Rate Cuts

Non-banking finance companies (NBFCs) are going in for another round of rate cuts. NBFCs are lowering interest rates on fixed deposit by anywhere between 50 to 200 basis points.

This cut follows the reduction in the bank rate from 11 per cent to 10 per cent and the sentiment of easy liquidity prevailing in the economy.

Market analysts feel lowering borrowing rates will enable NBFCs to lower their lending rates and thus compete with banks.

Banks are increasing emphasis on the retail segment which comprises the main client base of NBFCs, lowering their lending rates to this segment. Moreover, the tendency among NBFCs to lure depositors by offering higher rates than competitors is now over.

This is the third rate cut since the announcement of the credit policy in April. Rates are now down to 12.5 to 14.5 per cent from 17 to 19 per cent before April. While some NBFCs have effected their rate cuts in July, some will do so in August.

Alpic Finance will offer 14.5 per cent for fixed deposits of maturity between one to four years, effective August 1. Earlier, the rates were 16.5 per cent for over two years, and 17.5 per cent for four years.

Anagram Finance has also reduced rates on deposits this month to 13 per cent from 14 to 14.5 per cent. Birla Global Finance is planning to reduce rates by 50 to 100 basis points from the current level of 14 to 14.5 per cent.

Mukund Global Finance is reducing the rates on its cumulative scheme to 14 per cent from 16 per cent and on the half yearly scheme from 16.5 per cent to 13 per cent.

Kotak Mahindra Finance will be revising rates by 100 to 150 basis points to 12.5 per cent and 13.5 per cent from 13.5 to 15 per cent for maturities varying between one and five years. Lloyds Finance is also planning a rate cut.

However, it has not decided the quantum and the time.

Lending rates which have continuously fallen since April will come down further following the revision. Prior to April, lending rates were around 26 to 29 per cent.

Since then it has fallen to around 20 to 24 per cent. After this rate cut it should come down to around 18 per cent.

Top level executives in leading NBFCs hope that the lower rates will improve the credibility of NBFCs in the publics eye. They feel that following the CRB fiasco, the public has become wary of NBFCs offering high interest rates.