NBFCs rush to bond market to raise fund to meet festive demand
Source: Business Standard
A host of non-banking finance companies tapped into the debt capital market this festive season to meet rising credit demand amid slowing bank funding.
On Tuesday, Aptus Value Housing Finance raised Rs 300 crore at 8.75 per cent through bonds maturing in 5 years. ICICI Home Finance Company Ltd raised Rs 275 crore at 7.94 per cent, and Rs 300 crore at 7.95 per cent through bonds maturing in 5 years and 3 years, respectively. Bids for ICICI Home Finance Company will close on Thursday. InCred Financial Services Ltd raised Rs 215 crore.
Since August 1, non-banking financial companies (NBFCs) have raised Rs 73,820 crore through corporate bonds, according to data from Prime Database.
“Following the Reserve Bank of India’s decision to increase risk weightage [in November 2023], banks have raised interest rates and become more selective in their lending practices, prompting companies to explore alternative funding options like commercial papers and bonds,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
“Entities anticipating rate cuts soon are opting for CP issuances, while larger AAA-rated companies and PSU entities seeking long-term financing are turning to the bond market, where investor appetite remains strong. High-credit NBFCs, particularly those rated AAA and AA+, are increasingly tapping the market for long-term funds, with more than 80 per cent of the total fundraising since April coming from NBFCs,” he added.
AAA-rated firms raised Rs 54,680 crore through corporate bonds since August 1, which was 74 per cent of the issuances. Eight per cent of the issuances were by AA+ rated NBFCs.
Banks are turning reluctant to lend to NBFCs since the regulator increased risk weights for such loans in November last year. Outstanding bank loans to NBFCs have fallen to Rs 15.29 trillion as of July 26, 2024, from Rs 15.48 trillion on March 22, 2024. Year-on-year growth of bank loans to NBFCs slowed down to 12.7 per cent at the end of July compared to 19.9 per cent in the previous year.
In November 2023, RBI raised concerns about the extent of bank funding to NBFCs and increased risk weights on such exposures by 25 percentage points. In August, CP issuances rose to Rs 1.4 trillion, against Rs 1.05 trillion in July.
The rates at which NBFCs borrow from the market have softened, in line with the fall in benchmark bond yields.
“The rates are down as the yields on G-sec have come down. So, there is definitely an appetite to raise money through debt capital markets. But large value fund raises are still difficult, and the volumes are skewed towards PSU or corporate house-backed NBFCs. Largely the better-rated NBFCs are able to access the capital market to raise funds,” said a rating agency official.
The yield on AAA-rated 10-year corporate bonds fell by 9 basis points since August so far, whereas that on 5-year bonds softened by 29 basis points. On the other hand, AA+ rated 10-year and 5-year corporate bond yields fell by 3 bps and 6 bps, respectively, during the same period.
Data by the Prime Database showed that during the period, REC Ltd led the mobilisation chart with Rs 6,820 crore mop-up, followed by Power Finance Corp Ltd at Rs 5,791 crore, LIC Housing Finance Ltd at Rs 5,760 crore, and National Bank for Agriculture and Rural Development (NABARD) at Rs 5,000 crore. National Bank for Financing Infrastructure & Development issued bonds worth Rs 3,911 crore over the month of August. These top five issuers raised around 38 per cent of the total amount raised during the month.
“During the festival season, we will continue to see an increase in issuances,” said a dealer at a state-owned bank. “As rates soften, we will also see a rise in short-term debt issuances like CPs,” he added.
First Published: Sep 17 2024 | 8:25 PM IST
