Non-banking financial companies (NBFCs) have an advantage when it comes to banking licences because of their large customer base, according to Reserve Bank of India Deputy Governor K.C. Chakrabarty.
“NBFCs have an advantage in that they have the customer base. So if they get the (bank) licence they can convert (easily),” he said.
Earlier, there was some hesitation on giving a bank licence to an NBFC, but Kotak’s performance has shown that these institutions can also set up banks, Chakrabarty said at a Kotak Mahindra Bank event.
On the timing of last month’s directive to banks asking them to desist from offering zero per cent EMI schemes through credit cards, Chakrabarty said the timing is absolutely right.
“During the festive season, mis-selling is at its peak, so wrong things should not happen when more people come (to buy). Whatever you (banks) are doing, convey it to the customers,,” he said.
“There is no ban on giving loans on credit cards. What we are saying is don’t charge customers. Don’t charge more per cent by saying zero per cent,” he added.
According to him, banks must declare the interest rate at which they will offer loans. “Don’t give loans to people by luring them with lower interest.” On the increase in lending as compared to deposit mobilisation, the Deputy Governor said, “Banks are already giving lot of loans. Their incremental credit-deposit ratio is over 80 per cent. In fact, our problem is banks are giving too much loan. Banks are not being able to mobilise their deposits.”
The banking system will take another 12 to 24 months to overcome the bad loans and asset quality issues, according to Uday Kotak, Vice-Chairman and Managing Director, Kotak Mahindra Bank. “In my view it’s over next 12-24 months….The restructuring and asset quality issues are still there. Over time, the banking system will have to recognise the issues,” said Kotak at the inauguration of his bank’s branch in Mumbai. The bank now has 500 branches.
Though the Marginal Standing Facility (MSF) rate has been cut to 9 per cent, Kotak expects it be pared further to 8.25 per cent.
To a query whether his bank would cut lending rates, Kotak said, “In July, there was a 300 basis points increase (in MSF) and we raised our base rate by 25 bps. Now, the RBI has reduced the MSF by 125 basis points. So we are still higher by 175 bps (in terms of borrowing cost).”