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NBFC loan pricing under RBI lens
Why is it in the news ?
- The RBI is looking at the loan pricing regime of non-banking finance companies to make the practice of loan pricing more transparent.
More in the news
- At present, there is no anchor rate for NBFCs, similar to banks, that is linked to the lending rate of a particular loan.
- Case for Banks:
(1) For example, banks have the marginal cost of fund based lending rate (MCLR)- the anchor rate- and all the loans are linked to such a rate.
(2) Banks were not allowed to lend below the base rate or the MCLR rate.
(3) Banks are allowed to add a spread, based on the risk assessment, to the anchor rate-MCLR.
- Background:
(1) Generally the lending rates of banks and NBFCs are not responsive to changes in the RBI’s policy rate or the repo rate.
(2) As a result, the banking regulator has now mandated banks that floating rate retail loans for homes, vehicles and loans to SMEs should be linked to an external benchmark like repo rate.
(3) The main objective behind linking loans to an external benchmark was for faster transmission of monetary policy rates.
(4) At present, only a handful and not all of large NBFCs are supervised by the banking regulator RBI.
Source
The Hindu.