The government may reduce the rate of interest for loans to Non-Banking Finance Companies (NBFCs) from the proposed special purpose vehicle (SPV) by up to two percentage points.
As per the initial scheme, the SPV was to lend to NBFCs at an interest rate of 13-14%. The finance ministry is likely to approach RBI to reduce the cost of funds. This follows representations from NBFCs regarding high rate of interest bring charged under the scheme. If the finance ministry proposal is supported by the RBI, it would lower the rate of interest at which NBFCs can borrow from SPV to 11-12%.
In a recent meeting between the NBFCs and finance ministry officials, the NBFCs had conveyed that it was impossible for them to borrow at the
proposed rates.
"We are aware that interest rates are on a higher side and are looking at various options on how to bring them further down. Since it is a 90-day window, at a rate of around 14%, most NBFCs will not be able to utilise any funding and the package will not be put to use," said a senior finance ministry official who did not wish to be identified.
Source: Economic Times Govt May Cut Loan Rates For NBFCs By Up to 200 Bps
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By ugesh sarkar, Section Loans
Posted on Mon Feb 09, 2009 at 11:37:25 PM EST
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Later on, the government designated the Stressed Assets Stabilisation Fund (SASF) under Industrial Development Bank of India (IDBI), as the SPV to meet the needs of the NBFCs.
According to the initial formula agreed, the RBI was to charge the LoLR rate from the trust, which was to be rate of repo + 400 basis points (5.5 + 4 = 9.5%). In addition, there was government-guarantee fee of 1.5% and administrative and management charges by IDBI/SASF, taking the total estimated cost to about 14%.
The SPV would ensure that the rate charged to the NBFCs is higher than the corresponding market benchmark as the facility is a backstop LoLR support.
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