NBFC loan rates to fall 25-30 bps on repo, risk weight cuts

The reduction in risk weights on bank loans to NBFCs will encourage banks to lend more to shadow lenders, says Umesh Revankar, executive vice chairman of Shriram Finance.

- UMESH REVANKAR, EXECUTIVE VICE CHAIRMAN, SHRIRAM FINANCE

In an interaction with Sachin Kumar, he shares the company's growth outlook for the current fiscal. Excerpts:

The Reserve Bank of India (RBI) in February reduced risk weights on bank loans to NBFCs. How is this expected to benefit NBFCs and customers?

The reduction in risk weights will encourage banks to lend more funds to NBFCs. It will help ensure a higher flow of liquidity to the sector. Apart from this, the cut in the repo rate will help reduce the cost of funds. If not immediately, it will happen over a period of time. The transmission of both the repo rate cut and increased liquidity may take between six months and one year. A major part of the benefits of the repo rate cut will be passed on to customers. If you do not pass it on to the customer, you do not get the growth.

Therefore, the repo rate cuts and reduction in risk weights should translate into a 25-30-basis-point reduction in interest rates for various consumer and business loans over the next six months to one year.