The Hindu : Business : Hike in interest rate ceiling on NBFC deposits hailed

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Wednesday, Apr 25, 2007
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Hike in interest rate ceiling on NBFC deposits hailed

Special Correspondent

The interest rate on already contracted deposits will remain at the same level

CHENNAI: The 150-basis point hike in the ceiling on interest rates payable by non-banking finance companies (NBFCs) on deposits is seen as a logical step to help these outfits stay competitive in the current context.

The ceiling remained at 11 per cent for quite some time now. It has now been raised to 12.5 per cent. T. T. Srinivasaraghavan, Managing Director, Sundaram Finance, said the increase in ceiling on deposit rate would bring about some parity between banks and NBFCs. The final quarter of 2006-07 saw banks make a scramble to raise deposit rates. By increasing the ceiling on interest rates, "they (RBI) have mapped it to the overall interest scenario," he said. The interest rate on already contracted deposits would remain at the same level, he said.

While welcoming the RBI move, R. Thyagarajan, Chairman, Shriram Group, however, said it would not have much of an impact on the group's finance arms since they had very little FD (fixed deposits). In this context, he said the Shriram Group depended on institutional funding, securitisation and private placement of debentures. Mr. Thyagarajan told this correspondent that the two finance arms of the Group — Shriram Transport Finance and Shriram City Union Finance — had sought and obtained the status of `asset financing company' from the Reserve Bank of India a few days ago. For Chola DBS Finance, the other leading NBFC in this part, the RBI move did not matter at all. According to its Managing Director, Atul Pandy, Chola DBS had stopped taking public money and turned a non-deposit taking NBFC six months ago.

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