homefinance NewsRising lending rates may hurt Equitas Small Finance Bank as 4 out 5 loans are on fixed rates
Rising lending rates may hurt Equitas Small Finance Bank as 4 out 5 loans are on fixed rates
PN Vasudevan's comments highlight the complex nature of lending and the importance of monitoring and adjusting to changes in the market. While Equitas Small Finance Bank has taken steps to mitigate risks, it will be important for the bank to continue to adapt and innovate as needed to stay competitive in the ever-changing world of finance.
Around 83 percent of the Equitas Small Finance Bank's loans are currently on fixed rates. While this has provided some stability for borrowers, it could pose a challenge in a rising interest rate environment for the bank. To mitigate this risk, the bank has chosen to offer floating rates for housing and micro and small enterprises (MSE) loans, said PN Vasudevan, MD and CEO at the bank.
“About 15-17 percent of our loan book is floating rate, which is largely our home loans as well as our MSE loans. That is floating rate, which means that the remaining 83 percent is fixed rate loans and so in a rising interest rate scenario – like today – there should be some pressure on the net interest margins (NIMs),” he told CNBC-TV18.
This allows the bank to adjust its interest rates as needed, providing more flexibility for both the lender and borrower. However, this also means that borrowers may need to be prepared for fluctuations in their interest rates over time.
People, who opt for fixed home loan interest rate have to repay the home loan in fixed and equal installments as per the loan tenure. The advantage of fixed interest rate is that it would not change even if there are fluctuations or changes in the Indian financial market conditions or trends.
On the other hand, floating interest rate is volatile and keeps on changing as per the market scenario. This type of interest rate depends on the base rate offered by several lenders, so whenever the base rate changes, the interest rate gets automatically revised. This can be seen whenever RBI makes changes to its repo rate and the same is passed on to the borrowers.
Vasudevan also noted that the bank's NIMs are currently at 9 percent, but may decline marginally in the future.
“Current NIM is around 9 percent level. It might go marginally down,” he said.
This could be due to a variety of factors, such as changes in the overall interest rate environment or increased competition in the lending market.
Another issue Vasudevan addressed was the bank's restructured book. Currently, this accounts for around 2 percent of the bank's overall loans. Of this 2 percent, 45 percent has become non-performing assets (NPA).
“When we restructured last year, 9.5 percent of our advances were under restructured books and over time some of them are paid off, some of them have become NPA. What we are now left with is a restructured book in the range of around 2 percent of the total advances. Out of the 2 percent, nearly 45 percent has already moved to NPA,” he explained.
For more details, watch the accompanying video
(Edited by : Anshul)
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