 "NBFCs turn to debt market")
Non-banking financial companies (NBFCs), traditionally heavily dependant on banks for funding needs, are increasingly looking for alternatives, to take advantage of the lower interest rate in the debt market.
Some large ones, such as Housing Development Finance Corporation (HDFC) and L&T Finance Holdings, have seen a significant change in their funding mix, earlier more skewed towards bank borrowing.
Interest rates on money market instruments such as commercial paper began softening from August, though the base rate of banks stayed unchanged.
Reserve Bank of India (RBI) data on sectoral deployment of credit shows bank loans to NBFCs rose only 3.3 per cent in December 2014, as compared with an increase of 15.1 per cent in December 2013.
“Our cost of raising funds, too, has been coming down in the past few months, with a significant shift in the mix between bank funding and the bond market. If we consider the overall borrowing, around 45 per cent is from banks and the rest from the market. A few months earlier, it was the reverse,” said Y M Deosthalee, chairman and managing director, L&T Finance.
HDFC has increased its fund-raising from debentures and securities. “Deposits are now about 33 per cent of my total funds. Term loans from banks will account for 11 per cent and debentures, securities and bonds put together will account for 56 per cent,” said Keki Mistry, vice-chairman and chief executive officer. As of March 2014, term loans were 18 per cent, while debentures and securities were 51 per cent.
“Today, if HDFC borrows from the market, the coupon rate will typically be 8.5-8.55 per cent and L&T Finance might have to pay a coupon rate of 8.8-8.85 per cent for a two to five-year tenure of borrowing by way of private placement of bonds,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
He said appetite was coming from foreign institutional investors (FIIs), mutual funds and insurance companies. The interest of FIIs in corporate bonds with a high credit rating went up as the limits allocated to them for government securities got exhausted.
For some NBFCs, the need for funds reduced due to a slowing in business growth. “The incremental requirement for funds was not that much. Out total borrowing as of the first nine months in the current fiscal (financial year) was Rs 19,330 crore. For the previous fiscal in the same period, as on end-December 2013, it was Rs 20,410 crore,” said Oommen K Mammen, financial head at Muthoot Finance.
In the bond market, expectation is building for another rate cut by RBI. If it happens, in the months to come it would be cheaper to borrow through bonds, as most banks have not cut their base rates.
Some large ones, such as Housing Development Finance Corporation (HDFC) and L&T Finance Holdings, have seen a significant change in their funding mix, earlier more skewed towards bank borrowing.
Interest rates on money market instruments such as commercial paper began softening from August, though the base rate of banks stayed unchanged.
Reserve Bank of India (RBI) data on sectoral deployment of credit shows bank loans to NBFCs rose only 3.3 per cent in December 2014, as compared with an increase of 15.1 per cent in December 2013.
“Our cost of raising funds, too, has been coming down in the past few months, with a significant shift in the mix between bank funding and the bond market. If we consider the overall borrowing, around 45 per cent is from banks and the rest from the market. A few months earlier, it was the reverse,” said Y M Deosthalee, chairman and managing director, L&T Finance.
HDFC has increased its fund-raising from debentures and securities. “Deposits are now about 33 per cent of my total funds. Term loans from banks will account for 11 per cent and debentures, securities and bonds put together will account for 56 per cent,” said Keki Mistry, vice-chairman and chief executive officer. As of March 2014, term loans were 18 per cent, while debentures and securities were 51 per cent.
“Today, if HDFC borrows from the market, the coupon rate will typically be 8.5-8.55 per cent and L&T Finance might have to pay a coupon rate of 8.8-8.85 per cent for a two to five-year tenure of borrowing by way of private placement of bonds,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
He said appetite was coming from foreign institutional investors (FIIs), mutual funds and insurance companies. The interest of FIIs in corporate bonds with a high credit rating went up as the limits allocated to them for government securities got exhausted.
For some NBFCs, the need for funds reduced due to a slowing in business growth. “The incremental requirement for funds was not that much. Out total borrowing as of the first nine months in the current fiscal (financial year) was Rs 19,330 crore. For the previous fiscal in the same period, as on end-December 2013, it was Rs 20,410 crore,” said Oommen K Mammen, financial head at Muthoot Finance.
In the bond market, expectation is building for another rate cut by RBI. If it happens, in the months to come it would be cheaper to borrow through bonds, as most banks have not cut their base rates.