Rate transmission to NBFCs still in slow zone

PASS-THROUGH INCOMPLETE DESPITE FUNDING DIVERSIFICATION

- KSHIPRA PETKAR

THE TRANSMISSION OF repo rate cuts to non-banking financial companies (NBFCs) continues to be slow and uneven, even as many lenders steadily reduce their dependence on bank borrowings by tapping the bond markets and other funding sources, according to industry executives and analysts.

Since February 2025, the Reserve Bank of India (RBI) has lowered the policy repo rate by a total of 125 basis points (bps) as part of its broader effort to support economic growth amid subdued inflation. The cumulative easing in 2025 has taken the benchmark rate to a 40-month low of 5.25%. While the rate cuts have benefited retail consumers, the impact has not been similar for NBFCs.

"Around 50% of the cumulative policy rate change has so far been transmitted to NBFCs," said Umesh Revankar, executive vice-chairman of Shriram Finance. "Typically, transmission to NBFCs takes about three six months," Revankar said, adding that the pace depends on the funding mix and market conditions.