Glossary
Cost of funds
M5.01 · M5.02Also called cost of deposits, funding cost.
The average rate a lender pays for the money it lends out.
A bank paying ₹2,450 crore on ₹55,000 crore of deposits and borrowings has a cost of funds of 4.45%.
For a bank the figure is driven by the deposit mix, and low-cost current and savings balances are the reason it varies so much between institutions. For a non-banking lender there are no deposits at all, so the cost is set by wholesale markets and moves with the credit cycle and with the company's own rating.
That difference is the structural weakness of the non-bank model. Funding cost rises exactly when credit quality deteriorates.