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PSU Bank Recapitalisation: Intense Competition And Lower Rates For Borrowers


Seeing the need of the hour, RBI to solve the unending menace of NPAs in the banking system announced bank recapitalization which is similar to a stimulus for the sector. The impact of this would range from possible rate cuts, intense competition among lender categories and hence a ray of hope for end borrowers in all gamuts of loan categories.

PSU Bank Recapitalisation: Intense Competition And Lower Rates For Borrowers

Know about recapitalization of PSU Banks, here.

Lower cost of borrowing for NBFCs with margins not being hurted for them when transferring the cost to borrowers: The infusion of funds in tranches by the authorities can indeed translate into lower cost of funding for the other lenders who besides raising funds from the PSU banks have other sources as well such as issuing bonds. This borrowing at a lower rate could then mean lower rate for you as a borrower.

NBFCs have tapped more customer base: With more provisioning and difficult lending ecosystem, despite the lower outreach of NBFCs they have been seen to tap a higher market share in different loan categories. Also as the highly disturbed asset liability mismatch ecosystem betters there will be increased scope both in the form of competition and caste a ripple effect that is to be positive in the long run.

Nonetheless it has to be factored in as against the better state of the economy which has been approved by the recent Moody's sovereign bond rating, if the various factors that move the direction of interest rates do not augur well for the participants in the lending system, one or the end borrower shall still be in a better position due to intense competition that is likely to pan out in not so distant future.

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