Banking license to NBFCs will enable access to cheap funds
By Vaibhav Aggarwal
Oct 5, 2010
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Many corporates and other entities are in the race for getting a banking license from Reserve Bank of India. Non banking finance companies (NBFCs) stand a fair chance in the race owing to various reasons.

Although the cost of funds are cheaper for banks than for NBFCs, but NBFCs have their own sets of benefits. "Although banks have access to low-cost deposits, their yields are lower in some of the sectors in which they operate," says Vaibhav Agarwal of Angel Broking.

Banks have to follow regulatory requirements. Banks have to set aside 25% of their total funds as statutory liquidity ratio (SLR) which is not needed for NBFCs. Also it is mandatory for them to lend to priority sectors like agriculture at subisidised rates.

They have presence in one of the most hogh yielding segments like used commercial vehicle finance. Banks usually prefer not to venture into these areas due to the risk associated and difficulty in credit appraisal.

NBFCs also have another advantage in leveraging. "NBFCs can leverage almost up to 10 times their net worth" says VVLN Sastri of Firstcall India Equity Advisors.

Thus NBFCs seem to be an option that can be banked upon.


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