Dipping interest rate, wary MFs hit finance companies’ fund mop-up plans.
Life is getting tougher day by day for non-banking finance companies (NBFCs). With the interest rate cycle showing signs of moderating, they are finding no takers for their short-term debt instruments, even for their AAA-rated papers.
As a result, companies said their borrowing cost will still remain high though the interest rate across the industry is falling. The high borrowing cost will further squeeze their margins.
“The market for CPs is virtually dead as mutual funds, which had been the most active player, are facing redemption pressure. Similarly, for NCDs, there are fewer takers as banks have started to lower interest rates and, as far as securitisation of assets is concerned, that too has dried up after the recent amendments in the guidelines by the regulator,” said Shriram Transport Finance Company Managing Director R Sridhar.
Recently, the company got P1+ ratings from rating agency Crisil for its Rs 2,000-crore, short-term, debt instrument.
“We have doubts whether we would be able to raise the money through this route as there are very few takers,” Sridhar added.
“There are no other sources of funding available at the moment and we are looking at banks for credit requirements in the near future,” said Reliance Capital CEO Sam Ghosh.
Primarily, NBFCs have four sources — non-convertible debentures (NCDs), term loans from banks, short-term commercial papers (CPs) and securitisation of assets.
NDCs and CPs were till recently the main source of borrowings for these companies as MF players were most active in this space. Consequently, companies, which are backed by strong parentage, reverted to their parent for funding.
“Market conditions are very tight and NCDs are not fetching attractive prices. So, we have raised around Rs 400 crore recently from LIC, which, this year, has been our major source of funds,” said R R Nair, director and CEO, LIC Housing Finance. The housing finance company got the loan from its parent at less than 12 per cent.
For smaller players, banks remain the only source of credit, but the interest rate charged still remains as high as 13-15 per cent depending upon the profile of the company.
“We used bank borrowing occasionally as it comes at a high price, but now with all other sources drying up, there is no way out but recourse to bank credit, and this is putting real pressure on our margins,” said an NBFC official, who did not wish to be named.
