UTI Mutual Fund receives November payments for DHFL's commercial papers

UTI Mutual Funds has received payments for commercial papers (CPs) of Dewan Housing Finance (DHFL) that were maturing in November. 

"We can confirm that DHFL has prepaid CPs maturing at a later date in November to UTI MF. We cannot provide any further details as we do not comment on specific investment decisions," the fund house said.

According to sources, as these CPs were not rolled-over, the fund house now doesn't have exposure to DHFL CPs in UTI Liquid Cash Plan, UTI Money Market Fund and UTI Treasury Advantage Fund.

Experts say, while larger non-banking entities are covered for their near-term payments, funding for fresh business may be a challenge for some players.

Experts are keeping a close watch on the roll-over rates.

Krishnan Sitaraman, senior director, CRISIL Ratings said that CP volumes have increased in the last week of October and if the trend continues, roll-over rates should be higher in November.

Industry participants say that for now roll-over rates for top-tier companies (as perceived by market) is at 50 per cent, while for lower-tier companies the roll-over rates are under ten per cent. 

"Some non-bank finance companies (NBFCs) may see their growth slowed down due to lack of funding for fresh business," a fixed-income fund manager said, requesting anonymity. 

The CP market was facing a liquidity squeeze, following the IL&FS group default in September. The crisis had put a spotlight on the asset-liability mismatch of non-bank lenders (NBFCs and housing finance companies -- HFCs). 

The recent data indicates some easing of the liquidity. The fortnightly data released by the Reserve Bank of India (RBI) showed that the money raised by corporates and finance companies through CP market in fortnight-ended October 31 stood at Rs 949 billion. The figure was 19 per cent higher as compared to a previous fortnight.

According to market sources, the non-banking lenders (NBFCs and HFCs) raised Rs 300 billion in October. Almost half of this or Rs 150 billion was raised in the last week of October, albeit at a higher cost. The spreads had widened by 200 basis points for some NBFCs.

However, fund managers say given the risk-perception around NBFCs, portfolios of liquid schemes and other debt-oriented schemes may re-align with investor sentiments.

Securitisation has emerged as a significant alternative for liquidity, especially for HFCs. Another funding avenue gaining traction is retail bonds. Non-banks have already raised around Rs 270 billion through retail bonds in FY19 (upto September), compared with Rs 50 billion raised in FY18, CRISIL said in its note.   

The 50 large CRISIL-rated non-banks have debt repayments worth Rs 950 billion due in November. Of which, Rs 700 billion worth of repayments are related to CPs maturing. While some non-banks are well-placed to meet debt repayments without using the bank lines, others may have to tap into these lines, at least partially, CRISIL said.

Shifting gears

• MFs' debt exposures to NBFCs likely to reduce
• Portfolios to adjust due to risk-perception related to asset-liability profile, liquidity
• Securitisation has emerged as an alternative for NBFCs, especially HFCs 
• Retail bonds is another funding avenue that is gaining traction