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Magma Fincorp expects 15 bps increase in cost of funds for NBFCs

Updated : October 09, 2018 06:36 AM IST

Fresh concerns are brewing in the non-banking financial companies (NBFC) sector after the Reserve Bank of India (RBI) hinted that it may look to tighten regulations for capital adequacy norms, related party transactions and asset liability mismatches.

V Lakshmi Narasimhan, ED of Shriram City Union and Kailash Baheti, CFO of Magma Fincorp, discussed the possible impact of potential regulations.

“The rollover is a lesser of an issue. It is more like banks are not willing to let withdrawal of money from their system even for sanctioned line. I think that is a bigger worry than CPs not being rolled over because after all CPs was just about 8-9 percent of my total borrowing. It is more to do with the banks where we have an issue presently,” said Narasimhan.

“I think the banks are waiting for the clarity to move because we need people from different levels including the operating levels. At the operating level, it is clear that we are waiting for instructions from somewhere else and as far as the MF is concerned, we understand where they are operating from. They in any case move the way the market does. So I would have expected banks to be a little more optimistic about what should happen in terms of lending and this is a peak season of two-wheelers, auto sales so on and so forth, so at this point of time, I think it is a flux to put it very mildly. We hope we get some clarity over a period of next 10-12 days and hopefully the RBI comes out of that with a guideline in terms of ALMs and CPs so on and so forth. So at least the uncertainty is settled pretty quickly,” he added.

“What we have recently seen is that after the money which has moved out of mutual funds, the banks are sitting on a lot of liquidity so the money has moved out of the MFs and has gone in to these banks, these prompt corrective action (PCA) banks as well as government banks and private banks and therefore all the banks are sitting on a lot of money today. Non-PCA banks there is no problem whatsoever, they are allowing without any problem,” Baheti said.

“Cost of money will definitely go up,” he said.


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