NBFCs mulling a hike in lending rates

After banks, it is the turn of non-banking finance companies (NBFCs) to hike lending rates on the back of the Reserve Bank of India’s (RBI) rate hike spree to contain inflation. NBFCs’ borrowing costs are also increasing.

“Rate hikes by non-banking finance companies (NBFCs) are inevitable. Since NBFCs borrow from banks, they will also raise their lending rates though the hike would not be very sharp,” said Clyton Fernandes, an analyst at Anand Rathi Financial Services.

A few NBFCs have already raised rates. “We have already hiked our rates from September 1 by 25-50 basis points depending upon the product offered. As far as additional hikes are concerned, we will evaluate the situation and take a call,” said Rajeev Jain, chief executive officer, Bajaj Auto Finance.

Others will also join the race soon. When asked whether the impact of the RBI rate hikes will be passed on to the customers, a senior official at an NBFC said, “Maybe in a month or so lending rates will go up.”

NBFCs may not hike rates across all products at one go. But there is certainly an upward bias on their lending rates.

Banks have already increased their benchmark prime lending rates. The market is expecting that they may even raise their base rates, which were effective July 1.

“Banks may increase their base rates next month. Due to this the cost of borrowing will go up further. Correspondingly, we will have to pass on the impact to customers,” said R Sridhar, managing director, Shriram Transport Finance.

However, NBFCs expect disbursements to grow as demand rises. “We are looking at increasing our share of higher yield products, which include used commercial
vehicles, tractors and small and medium enterprises loans. We are looking at a 25% growth in disbursements,” said Ashutosh Shukla, chief operating officer, Magma Fincorp.

But this growth will be coupled with a rise in lending rates. “New customers will be impacted due to the rise in lending rates,” said Sridhar.

In 2010 so far, the RBI has hiked the repo rate by 125 basis points to 6% and the reverse repo rate has been hiked by 175 basis points to 5%.