Cost of funds for NBFCs may increase with base rate
By Vaibhav Aggarwal
Jul 6, 2010
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Most of public sector banks have kept their base rate around 8%. With this, most NBFCs feel that their cost of funds would raise by 100 basis points.

NBFCs are competitors of banks in many areas. However, they rely on term loans from banks for fulfilling many of their funding requirements. They say that before moving towards raising lending rates they would look in for other sources of funding.

The largest lender of the country, State Bank of India has set its base rate at 7.5%. HDFC Bank, the country's second-largest private sector lender, has set its base rate at 7. 25 per cent. However, all other large public sector banks, such as Bank of India, Bank of Baroda, Union Bank of India and Punjab National Bank, have set their base rate at 8 per cent.

ICICI Bank has also set the same base rate as SBI.

"Most public sector banks have set their rate at 8 per cent. At present, we are on term loans of around 7 per cent with an annual reset. When these loans come up for reset, the borrowing cost is likely to go up," said R R Nair, director and chief executive of LIC Housing Finance Ltd.

HDFC, the largest housing finance lender has already tied up for its funding requirements, Keki Mistry, vice-chairman and CEO of HDFC said.

"We still have not heard from our bankers on the issue and expect to do so within the next few days," said Shriram Transport Finance Managing Director R Sridhar.


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