Cost Rises for Micro Borrowers as RBI Deregulates Lending Rates

Source: The Economic Times

Borrowing costs for bottom-of-the-pyramid customers have begun to climb as the regulator removed the margin cap on NBFC-MFIs. Certain lenders have revised their lending rates upward by as much as 400 basis points as they apply risk-based pricing to arrest the asset quality degradation and the loss they suffered in the last three years. Several others are expected to follow suit, industry captains said.

"With deregulation of interest rates, we can now price for credit risk. So, a new-to-credit customer would pay slightly higher rates. But they can enjoy the benefit of lower rates after a few credit cycles if they show good credit behavior and repayment record," Arohan Financial Services Managing Director Manoj Kumar Nambiar told ET.