Non-Banking Finance Companies (NBFCs) believe that the 25 basis points hike in the repo rate announced by the Reserve Bank of India (RBI) should not result in an immediate increase in the rates at which banks lend to them. However, they confirm that should banks increase loan rates they would pass it on to customers.
Says Hemant Kanoria, managing director, Srei Infrastructure Finance, ?Some banks may hike the rates and if they do so we will pass on the cost. Over the past year banks have upped rates by about 150-200 basis points and we have been able to pass on most of it.?
Adds V Lakshmi Narasimhan, CFO, Magma Fin Corp, ?I don’t believe banks would increase rates as there is enough liquidity, though it?s possible some of them may do so. Narasimhan asserts that should banks increase rates, the NBFC would certainly pass it on to customers.
?However there is a lag of 75-90 days before which we pass on the costs,? he explains, adding that over last year Magma had increased lending rates by 150-160 basis points taking the range to between 12%-16%.
Says GS Sundarajan, managing director, Shriram Capital, ?Unless there is another rate hike by the central bank and the increase becomes 50 basis points, we don?t believe banks will pass on the increase to us. Observes, Ramesh Iyer, managing director, Mahindra and Mahindra Finance, ?We had anticipated a 25 basis points hike and factored it into our pricing a couple of months back.?
Iyer say, if at all, the company may choose to reprice its loans ahead of the festival season. ?The monsoons are not the right time to hike rates,? he points out adding that over the past year or so the cost of funds from banks has gone up by about 150 basis points.
M&M Finance?s Iyer is confident that the company can hold on to its operating margins. ?We don?t expect our margins to get compressed because if demand suffers the manufacturers or dealers will come forward to subsidise the cost to the customer.
Sundarajan points out that over the past year or so, the cost of money for Shriram?s lending businesses has risen by 60 basis points or so. ?Since we borrow from sources other than banks including retail debentures and deposits, we don?t believe that our cost of borrowings will go up immediately.?
The company sees no issues in passing on the cost to the customers. Explains Sundarajan, ?Since we lend to under-served sections that don?t have access to other lenders, we don?t see any problems in passing on the costs.?
Magma?s Narasimhan believes that higher lending rates together with the rising cost of fuel could hurt demand from the automobile industry could taper off to 15-18% growth this year. Srei?s Kanoria believes that while borrowers who have existing projects will have no option but to pay higher rates if we pass on the costs. However, credit demand is slowing from some sections because higher rates are impacting costs, he says.