Non-convertible debentures have garnered interest among non-banking finance companies, with entities such as L&T Finance, Shriram City Union, Srei Infrastructure Finance, Magma Fincorp and Muthoot Homefin announcing issues in April.
An aggregate amount of Rs 3,050 crore is expected from these NCD issues at a coupon rate ranging between 8.48 per cent and 10.76 per cent. The industry expects more NCDs in the coming months.
NBFCs are looking to diversify their source of funds amid tight liquidity conditions and are bullish on attracting retail participation amid low bank interest rates by offering a higher rate on their debentures.
According to industry observers, banks have become cautious towards NBFCs, prompting many to look at alternative sources of fund. These include NCDs as well as external commercial borrowings, masala bonds and even retail fixed deposits.
Lending to the NBFC sector took a major hit during the third quarter after Infrastructure Leasing & Financial Services (IL&FS) defaulted on its payments.
Moreover, NBFCs which grabbed a large portion of mutual fund money through commercial paper subscriptions found it difficult to roll over these instruments.
The shift in the liability mix towards long-term borrowings will have a bearing on the cost of funds. With NCDs offering a low-cost option to raise money, more NBFCs are expected to tap this route in the current year.
“We are looking at diversification of source of funds. There are many options and NCDs is one of them,” said Kailash Baheti, chief financial officer of Magma Fincorp, which is looking to bring down the share of banks in its liability profile from 67 per cent at the end of the third quarter of 2018-19.
NBFCs together raised Rs 33,715.79 crore through corporate bonds in 2018-19, with Dewan Housing Finance raising a substantial Rs 10,944.79 crore, according to data available from Sebi.
Industry sources said the amount could be even more in the current fiscal.
The Reserve Bank of India had eased risk weight norms in February to aid credit flow to the NBFCs. The new rule asks banks to assign differential risk weights to their exposures to NBFCs based on the ratings assigned by credit rating agencies against the existing practice of a uniform risk weight of 100 per cent.
