RBI plans to structure loan rates to NBFCs, HFCs

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Published: September 19, 2019 2:56:56 AM

A process is underway to determine how non-banks calculate interest rates and whether there is an anchor or not. Guidelines on this may be some way off as the sector is in turmoil at present.

RBI, NBFC, HFC, industry news, banking news, Reserve Bank of IndiaThe central bank has been in search of an anchor that can effectively transmit monetary policy action, which is more transparent and fast enough. (Image: Reuters)

The central bank is likely to develop an anchor for interest rates for loans disbursed by non-banking financial companies (NBFCs) and housing finance companies (HFCs). At present, NBFCs and HFCs do not have any guideline from the Reserve Bank of India (RBI) like marginal cost of fund-based lending rate followed by banks.

A process is underway to determine how non-banks calculate interest rates and whether there is an anchor or not. Guidelines on this may be some way off as the sector is in turmoil at present.

The central bank has been in search of an anchor that can effectively transmit monetary policy action, which is more transparent and fast enough. Given the numerous anchor rates introduced in the past, it is now believed that the external benchmarking is more transparent. Hence, the RBI has made it mandatory for the banks to follow.

The RBI has mandated all banks to link all new incremental floating-rate loans for personal, retail and MSMEs to external benchmarks like the repo rate from October 1, 2019, to ensure smooth transformation of policy rate cuts.

“At present, there is no mandate from the central bank to determine (HFCs & NBFCs) rates based on an anchor, nor are there instructions on what the anchor should be or how it should be calculated,” said sources aware of this development.

At present, there is no instruction to NBFCs to have an anchor rate or how to calculate an anchor. There is a need to graduate NBFCs and HFCs and it is currently being examined as to how this can be done to bring more transparency to NBFC rates. Also, it is important that non-banks are not in the same market as banks.

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