Anticipating a repo rate hike from the Reserve Bank of India (RBI), non-banking finance companies (NBFCs) say they will have to raise their lending rates and pass on higher costs to customers to protect interest margins in the third and fourth quarters.
Analysts and experts expect the RBI to hike the repo rate by 25 bps to 8% during its mid-quarter policy review on Wednesday.
?We will most probably see a rate hike and may pass on the cost to customers, as is the industry practice with floating interest rate products,? said Rakesh Makkar, president and chief distribution officer of Dewan Housing Finance Corporation (DHFL). Similarly, Srei Infrastructure Finance also said it would have to pass on the costs to customers if the RBI raises its repo rate.
Most NBFCs have raised their interest rates by about 50 bps in the August-September period to protect their margins. ?With RBI hiking repo by 50 bps and another 25 bps likely (as per our economist), funding costs will remain elevated. However, most NBFCs had upped lending rates by 50 bps in August-September and, so, margins should remain stable,? a report by HSBC Global Research said.
The report added that housing NBFCs will see stable growth in Q3 while the auto sector will continue to remain subdued. ?While most NBFC segments are not seeing recovery yet, retail housing continues to stand out. It has been the most resilient sector in the past few years, despite the slowdown, and still continues to grow at a steady pace,? the report said.
DHFL?s Makkar said the company is looking at a loan growth of 15% and maintain its current NPA levels. The HSBC report also said that commercial vehicle (CV) finance continues to be under stress and new CV sales continue to be low normal.
?There is some stress in the new commercial vehicles segment because there has been no pick-up in mining and industrial activity. We expect a turnaround in sales for commercial vehicles in the next 3-6 months,? Umesh Revankar, MD of Shriram Transport Finance Company, told FE earlier this month. Shriram Transport also saw a degrowth of 11.9% in new CVs to R8,296.5 crore at the end of September 30 from R9,413.2 crore at the end of the June quarter.
The HSBC report said there were some positive signs in the infrastructure sector with the government clearing many roadblocks. It added that the power sector, which forms about 50% of infra finance, has incrementally seen more resolutions coming through in the past two months, including the financial restructuring package (FRP) signed by the largest exposure states of Uttar Pradesh, Rajasthan and Haryana, and fuel supply agreement (FSA) being signed with private power projects.