This is with reference to the ‘Rising bank funding of NBFCs poses systemic risks: RBI body’ (November 8). As to expanding the balance sheet banks are substantially giving credit to NBFCs even at lower rates, which is adversely affecting the net interest margin and return on assets of banks.
NBFCs are servicing the bank borrowings from the revenue generated from their business. Any upheavals in their business activities, particularly in their lending to small NBFCs, will increase the probability of loan defaults so banks need to watch out while increasing their exposure to the NBFC sector.
NBFCs lending at higher interest rates are prone to delinquency due to their exposure to the unorganised sector.
The NBFCs increasing unsecured loans with higher rates to last-mile borrowers are indirectly connected to the banks and therefore the NBFCs’ credit disbursements and pricing need to be watched by the regulators. Capping the price of loans to the last-mile borrowers is critical to prevent possible delinquencies.
With reference to the news report ‘Rising bank funding of NBFCs posed systemic risks: RBI body’ (November 8), Indian banks should not forget how they burnt their fingers in the lending spree to infrastructure at the government’s instance.
They found that an easy way to expand their lending portfolio and satisfy political bosses while risk management took a back seat.
Today , a similar trend is visible in lending to NBFCs and retail sector. One hopes the RBI steps in to stem the tide before it is too late.
Interest rate blues
This refers to the Editorial ‘Q2 results signalling downward risk to growth’. With the RBI’s MPC continuing to maintain the status quo on interest rates and persisting with its monetary tightening measures in the backdrop of inflation still remaining above its threshold limit, there is no hope on the horizon now for a revival in demand.
Sluggish demand coupled with a discernible drop in the earnings of corporations, largely due to high interest rates, is impeding economic recovery.
While ensuring price stability is the primary mandate of the RBI, it cannot afford to overlook the negative fallout of its persistently high interest rate on economic growth.
Sholavandan (Tamil Nadu)
Perils of untimely rains
Apropos “Rains may hit Karnataka’s Arabica coffee quality” (November 8), rainfall during the harvest season has worried not only coffee growers but also Paddy farmers. Heavy rainfall during harvest season causes coffee fruit dropping apart from inviting pest concerns, despite using artificial drying methods by a select few.
Paddy farmers face severe yield loss since there is no practice of artificially drying paddy except on relying on the Sun God, which is not dependable this season. The only plausible antidote is crop insurance promoted by the state government, which is unlikely due to its financial limitations.
Halekere Village (Karnataka)