After RBI's tighter regulations, borrowing costs rise for NBFCs

Current Context: The Reserve Bank of India (RBI) has indeed tightened regulations for non-banking financial companies (NBFCs), which has led to an increase in borrowing costs for these institutions.

• The cost of borrowing for companies, banks, and non-banks through commercial papers (CP) and certificates of deposits (CD) has increased by 15-25 basis points (bps) over the past month.
• Experts have highlighted that NBFCs that are competing with banks by offering aggressive interest rate hikes to attract customers will see a rise in the cost of funds.
• In a rising interest scenario, the cost of borrowings for NBFCs is expected to rise by 100-120 basis points (bps) in 2022-23, according to a CRISIL report.
• This increase in borrowing costs could pose challenges to NBFCs.
• The RBI’s tighter regulations include barring NBFCs from lending to businesses that their senior executives and directors are interested in and forcing NBFCs to disclose exposure to all sensitive sectors, including real estate, loans against shares, and securitised mortgages.
• These measures are part of the RBI’s efforts to strengthen the norms for NBFCs following the IL&FS and DHFL failures.

Question:

Q.1 By how much is the cost of borrowings for NBFCs expected to rise in 2022-23, according to a CRISIL report?
a. 15-25 basis points (bps)
b. 50-75 basis points (bps)
c. 100-120 basis points (bps)
d. 150-175 basis points (bps)