Non-banking finance companies (NBFCs) have stepped up their borrowings through commercial papers (CPs) and non-convertible debentures (NCDs) since last week, encouraged by the sharp fall in short-term rates.
“Reason for increased activity on fund raising is for better asset-liability management by borrowers. Moreover, overall lending activity has also improved marginally,” said Rajeev Jain, chief financial officer, Bajaj Auto Finance.
Last week, NBFCs raised a total of Rs 20 billion through NCDs and CPs, after a gap of nearly 20-25 days. Also, with liquidity remaining abundant, NBFCs are now finding it easy to get investors for their issuance’s.
“The yield on one-year certificates of deposit has subsided significantly. Therefore, mutual funds are looking for alternative investments that offer a higher yield, which is one reason why demand for NBC papers have picked up,” said Sumac Choudhary, vice president and fund manager - fixed income, HSBC Mutual Fund.
A CP issued by an NBFC is typically priced at least 50 basis points above the rate of a state-owned bank’s convertible debenture (CD).