The interest spread of non-bank financial institutions (NBFIs) witnessed a substantial decline of 60% in April 2023, primarily due to a surge in non-performing loans within the sector. This decline directly impacts the income of NBFIs, necessitating a minimum interest spread of 3% for financial stability and sustainability. The interest rate spread represents the difference between lending and deposit rates.
Currently, NBFIs collect deposits at an average interest rate of 7.83%, while the loan interest rate stands at 8.27%, resulting in a narrowed interest rate spread of 0.44%. This decrease can be attributed to reduced loan rates caused by the rise in non-performing loans. Some NBFIs face adverse interest spreads, with People’s Leasing and Financial Services experiencing the highest negative spread at 11.31%. Additionally, NBFIs are struggling to compete with banks due to interest rate caps. The central bank allows NBFIs to charge 7% interest on deposits and 11% on loans, but compliance is lacking. NBFIs are urged to raise deposit rates to attract deposits and mitigate the impact of rising bank rates.