Manappuram Finance Sees Borrowing Rates Fall by Up to 50 bps

Kolkata: Leading gold loan non-banking finance company (NBFC) Manappuram Finance is expecting interest rates on its bank borrowing to decline by up to 50 basis points following the recent Reserve Bank of India notification allowing banks to lend to NBFCs with risk weight-age based on the borrower’s credit rating instead of the earlier stipulation of 100% risk weight.

“We raise funds through diversified sources such as through commercial papers, non-convertible debentures and borrowings from banks and other financial institutions. We expect interest rates on our bank borrowing to come down by up to 50 bps following the recent RBI notification allowing banks to lend to NBFCs with risk weightage based on the borrower’s credit rating,” VP Nandakumar, managing director of Manappuram Finance, told ET, adding that RBI’s decision to peg interest rates with an external benchmark is an important step to make the monetary policy transition smoother.

He said, historically, there has been a fair amount of lag between RBI’s decision on rates and their implementation on ground, but this should change when interest rates are pegged against external benchmarks. “Currently, it takes about 3-4 months for monetary policy transmission, but with linkages to an external benchmark, we expect the transmission lag to reduce. Should the RBI cut rates in its April policy, we expect the benefit to be passed on to borrowers without lag allowing us to adjust our product pricing. We price our products keeping in mind the customer and the competition,” he said.

It is also expecting a debt investment of up to $75 million from IFC. “Discussions with IFC have been under way for quite some time and now we are waiting for the final sanction to come through,” said Nandakumar. Commenting on how their gold loan business has grown in the fourth quarter due to a rise in gold prices, the Manappuram chief said as prices of gold rise, customers become eligible for a higher loan amount on their holdings of gold jewellery and this gives a short term and temporary boost to gold loans.