Nbfcs Jittery Over Fcnr (B) Provision

Several smaller finance companies act as brokers, bringing together parties which have access to lines of credit from abroad and the borrower for import of machinery. The finance companies charge the borrower a fee, which could range between 2 per cent and 5 per cent, for introducing him to the bank or a larger finance company which sanctions credit.

With corporates now being able to access funds cheap through banks, finance companies are seeing their fee-based income as arranger of funds coming down.

In a scene where banks have FCNR (B)-backed deposits and are willing to on-lend them without any conditions and stipulations, why should a corporate need an intermediary for helping it to access funds? a non-banking finance company official asked.

 

Usually, lines of credit from multilateral agencies are available under certain stipulations.

These sometimes include on-lending only for certain segments like the small-scale sector. However, bank funds now backed by FCNR (B) deposits are expected to be on-lent without any stipulation, which will make bank funds more attractive to the borrower than any borrowing from abroad.

Moreover, the foreign currency-denominated funds of banks will be available at all branches.

Bank of Baroda (BoB) has already started an aggressive marketing programme for foreign currency denominated funds, and has declared an interest rate of 2 percentage points over six-month Libor for access to the loans.

In case of loans for import of capital goods, the rate will be 2.5 percentage points over six-month Libor rates with a six-monthly rollover.

The bank will also provide a forward cover for six months to avoid exchange risk. State Bank of India is set to declare its rates soon.

Some non-banking finance companies also participated as arrangers of external commercial borrowings (ECBs) for corporates. There is an expectation that this fee-based route for finance companies will also see a slowdown with few corporates needing to go the ECB way to access funds.