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Time of India
a day ago
- Business
- Time of India
Steep Rate Cut Set to Provide NBFCs a Healing Touch
Live Events The Reserve Bank of India 's deepest interest rate cut in five years is expected to boost the performance of non-banking finance companies ( NBFCs ), as their margins will expand with a fall in funding cost and a slower repricing of their loans compared with banks, say RBI's easier stance on unsecured loans and a reduction in risk weights will make it easier for banks to lend to NBFCs, which had struggled for funds after the central bank hiked risk weights in increased liquidity should help the sector to step up its own lending non-bank lenders have diversified funding sources, bank loans still account for about 65% of their reduction in rates or easier liquidity conditions provide them a direct the opportunity, investors poured money into NBFC stocks Monday, with companies such as Capri Global (up 20%), Five Star Finance (up 10%) and JM Financial up (9%) posting strong lending to NBFCs has slowed outstanding loans to the sector fell Rs 25,512 crore in March 2025 from a month before to close fiscal 2025 at Rs 16.1 lakh crore. For FY25, bank lending to NBFCs rose 5.7%, almost half the 11% credit growth recorded by the banking sector . In FY24, lending to NBFCs had grown 16%.Analysts said the numbers will improve this fiscal RBI on Friday cut the repo rate by half a percentage point, taking the reduction in its policy rate this calendar year to 1 percentage point. Banks, which are being nudged by the RBI for a quick transmission of its easy policy, will be faster in cutting rates than NBFCs, said analysts.'NBFCs offer fixed rate loans which are repriced according to their internal benchmark rates. Competitive pressures notwithstanding, NBFC margins will hold up better compared to banks,' said AM Kathik, co-group head, financial sector ratings, at ratings firm ICRA. 'Rate benefit for NBFCs will trickle down in the next six months.'An expected reduction in banks' marginal cost of funds-based lending rate (MCLR) will provide about a 30-basis-point (0.3-percentage-point) benefit to NBFCs by December, he Global Securities analysts Avinash Singh and Kishan Rungta said the overall actions and messaging from the RBI are supportive of NBFCs and signal that the regulator is satisfied with the system's stability and supports their growth.'With the cost of funding coming down and stress easing in a few segments, NBFCs are set for risk-calibrated profitable growth. (While) the first quarter will be mainly lacklustre, (the) focus (will be) on growth from the second quarter,' they said in a note to clients. 'We expect the recent sharp rate cut to support NBFC margins starting from Q1FY26, with more meaningful gains likely to accrue in H2FY26 and FY27.'Emkay expects NBFC performance to improve this fiscal from last year, when operations were disrupted also by heatwave conditions and elections in the first said lending to NBFCs should pick up depending on demand from the sector, with banks having strengthened their underwriting standards.'Except the microfinance sector, which needs some fine tuning, NBFCs are well placed, particularly the higher rated ones. Yes, there was some caution on the sector, but now with the situation improving, we think that that is one sector where lending could pick up,' said Bank of Baroda executive director Sanjay Mudaliar. 'Underwriting standards have been tightened and banks like us are looking for higher credit score loans even while purchasing loans from NBFCs,' he February, RBI governor Sanjay Malhotra reduced the risk weight for bank loans to NBFCs, halving the capital to be assigned for AAA-rated NBFCs to 20% from 45%, bringing down the cost of capital. The move, along with Friday's rate cut, could mean NBFCs can now double down on loans from banks.
Economic Times
a day ago
- Business
- Economic Times
Steep rate cut set to provide NBFCs a healing touch
Reuters Reserve Bank of India The Reserve Bank of India's deepest interest rate cut in five years is expected to boost the performance of non-banking finance companies (NBFCs), as their margins will expand with a fall in funding cost and a slower repricing of their loans compared with banks, say RBI's easier stance on unsecured loans and a reduction in risk weights will make it easier for banks to lend to NBFCs, which had struggled for funds after the central bank hiked risk weights in 2023. The increased liquidity should help the sector to step up its own lending activity. Though non-bank lenders have diversified funding sources, bank loans still account for about 65% of their funding. Any reduction in rates or easier liquidity conditions provide them a direct advantage. Recognising the opportunity, investors poured money into NBFC stocks Monday, with companies such as Capri Global (up 20%), Five Star Finance (up 10%) and JM Financial up (9%) posting strong gains. Bank lending to NBFCs has slowed sharply. Banks' outstanding loans to the sector fell Rs 25,512 crore in March 2025 from a month before to close fiscal 2025 at Rs 16.1 lakh crore. For FY25, bank lending to NBFCs rose 5.7%, almost half the 11% credit growth recorded by the banking sector. In FY24, lending to NBFCs had grown 16%. Analysts said the numbers will improve this fiscal year. The RBI on Friday cut the repo rate by half a percentage point, taking the reduction in its policy rate this calendar year to 1 percentage point. Banks, which are being nudged by the RBI for a quick transmission of its easy policy, will be faster in cutting rates than NBFCs, said analysts. 'NBFCs offer fixed rate loans which are repriced according to their internal benchmark rates. Competitive pressures notwithstanding, NBFC margins will hold up better compared to banks,' said AM Kathik, co-group head, financial sector ratings, at ratings firm ICRA. 'Rate benefit for NBFCs will trickle down in the next six months.'An expected reduction in banks' marginal cost of funds-based lending rate (MCLR) will provide about a 30-basis-point (0.3-percentage-point) benefit to NBFCs by December, he said. Emkay Global Securities analysts Avinash Singh and Kishan Rungta said the overall actions and messaging from the RBI are supportive of NBFCs and signal that the regulator is satisfied with the system's stability and supports their growth. FOCUS ON GROWTH 'With the cost of funding coming down and stress easing in a few segments, NBFCs are set for risk-calibrated profitable growth. (While) the first quarter will be mainly lacklustre, (the) focus (will be) on growth from the second quarter,' they said in a note to clients. 'We expect the recent sharp rate cut to support NBFC margins starting from Q1FY26, with more meaningful gains likely to accrue in H2FY26 and FY27.' Emkay expects NBFC performance to improve this fiscal from last year, when operations were disrupted also by heatwave conditions and elections in the first said lending to NBFCs should pick up depending on demand from the sector, with banks having strengthened their underwriting standards. 'Except the microfinance sector, which needs some fine tuning, NBFCs are well placed, particularly the higher rated ones. Yes, there was some caution on the sector, but now with the situation improving, we think that that is one sector where lending could pick up,' said Bank of Baroda executive director Sanjay Mudaliar. 'Underwriting standards have been tightened and banks like us are looking for higher credit score loans even while purchasing loans from NBFCs,' he added. In February, RBI governor Sanjay Malhotra reduced the risk weight for bank loans to NBFCs, halving the capital to be assigned for AAA-rated NBFCs to 20% from 45%, bringing down the cost of capital. The move, along with Friday's rate cut, could mean NBFCs can now double down on loans from banks.
