Cost of funding is set to increase for non-banking finance companies, especially those that provide equipment finance, due to the Reserve Bank of India’s new guidelines on the same. Therefore, profitability of such companies could come under pressure in 2012-13, said Fitch Ratings.
Funding costs may increase by 75-100 basis points for some major NBFCs,? said Fitch ratings in a seminar hosted online on Tuesday. In May, the RBI released final guidelines on securitisation wherein it has prohibited credit enhancements of direct assignment transactions. Such a move will deter banks to invest in such transactions as the entire credit risk will be transferred on their portfolio.
Costs of raising capital will jump. Dependence of bank funding unlikely to change, for want of alternatives,? said Ehsan Syed, director of financial institutions ratings at Fitch.
Further, owing to the slowing economic growth and the pressures on asset quality, some NBFCs may have to diversify into other avenues such as gold loans. NBFCs with high concentration risk such as Shriram Transport Finance would find it difficult to manage the risks on their portfolio, the agency said.
Shriram Transport Finance has raised funds through assigning a large chunk of its loan portfolio to banks through direct assignment transactions. Fitch has a negative outlook on Religare Finvest and SREI Equipment Finance. The rating agency said that it would watch NBFCs’ ability to raise more capital as per regulatory requirements going ahead for further direction on ratings.