Non-banking financial companies (NBFCs) seem to follow the footsteps of bankers. With most banks having increased their lending rates over the past month, now it is NBFCs that are looking to raise lending rates.
Earlier this month, Magma Fincorp raised loan rates by 25 basis points and Mahindra Finance is likely to follow suit next week.
Mahindra Finance MD Ramesh Iyer confirmed that his firm will be raising lending rates in the third week of November. ?Since July, we have seen a rise of 25 basis point in our cost of borrowings. So far we have not passed the extra cost to our customers as we wanted to tap the high volume of business during the festive season.?
Srei Infrastructure Finance MD Hemant Kanoria said although the cost of borrowings from banks has gone up by 25-30 basis points and Srei Infra has raised almost 60-65% of its total resources from the banks, a decision on raising rates would be taken only in the first week of January. Muthoot Finance MD George Alexander said, ?In general, we have seen half a percentage rise in cost of borrowings from the banks since last two months. However, we have not yet passed it to our borrowers. If tight liquidity situation prolongs, we would hike interest rates.?
Magma Fincorp CFO V Lakshmi Narasimhan observes that, sequentially, there has been a rise of 25% on vehicle and SME loans. ?With the festive season getting over, we have effected a 25 basis points hike in lending rates in the first week of November to nullify the effect of higher cost of borrowings,? Narasimhan said.
Meanwhile, NBFCs are not immediately floating bond issues to meet their working capital needs. However, Muthoot Finance, according to the merchant banking sources, may be raising Rs 300-400 crore through a secured non-convertible retail debenture by the end of December 2010 to support its working capital needs.
The Kerala-based NBFC, engaged in giving loans against gold, is hitting the equity market by January end for which it has already filed a draft red herring prospectus (DRHP) with the market regulator Sebi. It would be offering 5.15 crore fresh equity shares. Mahindra Finance raised more than half of its total resources through bank loans.
The Reserve Bank of India (RBI) increased its key policy rates by 25-50 basis points on September 16, 2010 after which most banks hiked their lending rates. On November 2, 2010, the RBI again hiked its key policy rates by 25 basis points.