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Rediff.com  » Business » Infrastructure: RBI forms new class of NBFCs

Infrastructure: RBI forms new class of NBFCs

Source: PTI
October 27, 2009 19:22 IST
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MoneyTo help infrastructure firms meet their huge demand for funds, the Reserve Bank of India on Tuesday created a new category of non-banking finance company that might bring down the lending rate for the sector.

"NBFCs engaged in financing of infrastructure would henceforth be classified in a new category called infrastructure NBFCs," the RBI said in its monetary review.

The new category would also help NBFCs raise more money from overseas markets, for which the government has raised the cap to $500 million from earlier $100 million under the approval route.

Infrastructure NBFC, Srei Infrastructure CMD Hemant Kanoria said at present NBFCs lend money between 10 and 14 per cent to the infrastructure sector.

"If, we are able to raise money from foreign market, it will also prompt us to bring down interest rates," he said.

L&T finance assistant vice-president G K Shettigar also said the move will help cut lending rates for infrastructure.

"Creating the infrastructure NBFC category will bring down the cost of lending per bank. NBFCs would now be able to extend loans on competitive rates since the cash reserve ratio that they would need to maintain would be less compared to its counterparts," he said.

The RBI also proposed to link the risk weights of banks' exposure to such NBFCs to the credit rating assigned to the NBFC by external credit assessment institutions.

At present, the risk weight for banks' exposure to systemically important non-deposit taking NBFCs is 100 per cent and asset finance companies carry a risk weight-based on credit ratings.

Banks have to keep more money aside while lending if risk weights are higher.

On August 2009, overall credit flow to NBFCs stood at Rs 23,837 crore (Rs 238.37 billion), down from Rs 26,443 crore (Rs 264.43 billion) in the year-ago period, the RBI data said.

Infrastructure sector as a whole requires around $500 billion during the eleventh five-year plan.

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