NBFC lending steams Economy, RBI gets tough

Even as banks have been looking for increasing theiur exposure to unsecured loans, the Auto loans sector and even loans to businesses in real estate sector have grown healthily in 2011 on the back of NBFCs alone. CV financing by Shriram Auto and commercial Finance by L&T Finance alongwith players like Mahindra Financial for in house auto loans have been growing through 2011 even as price hikes creep up on buyers.

In the mean time, the success of Discounts and promotions has encouraged vehicle manufacturers ( see December Auto Sales report) to continue suhc offers till February 2012

While Auto loans may well reach rates of 12-13% to the consumer or flat rates of nearly 10% per month,

Loans
Image by jferzoco via Flickr

interest rates are unlikely to come down for the NBFC lenders even when the central bank does cut interest rates for the banks. Also, most NBFC lenders survive on a higher margin as a higher tolerance is inbuilt into their models for repayment schedules of borrowers unlike bank finance. However as of now, RBI applies the same three month norms to recognise NPAs for these players and this might skew their loan book performanc eint he coming one or two quarters, in some cases leading to increasing borrowing costs from banks too.

While NBFC lending has crossed 2.0 Tln in the current credit reporting to RBI, making it 5% of credit assets the same has been pulled up by the Central Bank esp targeting those rejected by the Central Bank from taking public deposits into the ND-NBFCs or Non Deposit taking NBFCs.

RBI is mulling a limit ont he anmount of bank funding available to these NBFCs the MFIs are separately classified, as are Infra Financing Companies. MFIs have recently been allowed to access ECBs internationally to compensate for the dqueeze on lending practices and regulation of margin and amount of loans they can make in their captive rural/urban areas MFIs can be registered as a Society or Trust or with the RBI as NBFC-MFI

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