LIC Housing Finance to further trim bank borrowings to 11-12%: CEO

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Mumbai | Published: October 18, 2015 5:29:26 PM

With the availability of many cheaper sources of funds, LIC Housing Finance, which has reduced its reliance on banks for loans, sees a further decline in its bank borrowing to 11-12 per cent in the next few months from 15 per cent now.

With the availability of many cheaper sources of funds, LIC Housing Finance, which has reduced its reliance on banks for loans, sees a further decline in its bank borrowing to 11-12 per cent in the next few months from 15 per cent now.

“Our borrowings from banks have come down to 15-16 per cent in the second quarter as against a high of 30 per cent earlier. We see a further reduction of 3-4 per cent in this going ahead,” LIC Housing Finance managing director and CEO Sunita Sharma told PTI.

She said the company is tapping bond market for funds where the rates are cheaper than what is being offered by banks.

The housing finance company from the largest insurer LIC has plans to raise Rs 40,000 crore through non-convertible debentures (NCDs) in this fiscal year.

Out of this, it has already raised around Rs 7,000 crore in the first quarter and over Rs 10,000 crore in the second quarter from bonds.

Sharma, however, said banks will continue to remain one of the borrowing sources for the company saying “we cannot completely do away with bank borrowings.

They are crucial to meet our immediate funding requirement.

“Domestic rating agency Icra’s senior vice-president and co-head for financial sector ratings Vibha Batra said many NBFCs have better credit profile which help them raise cheaper money from instruments like bonds and commercial papers.

“A lot of NBFCs have high rating which give them cheaper options in the form of bonds and commercial papers to raise funds. They can borrow at 8.40-8.75 per cent from debt instruments,” she said.

According to Ajay Manglunia, executive vice-president for fixed income at Edelweiss Securities, bond market offers cost advantage by offering lower rates than banks, which are lending to them at base rate and some spread over it.

“Banks lend to NBFCs at around 11 per cent on an average. On the other hand NBFCs can raise funds from bond market at 2-3 per cent lower than this,” he said.

He said most banks have reached the maximum exposure limit of 15 per cent to NBFCs and these lenders now find it difficult to offer funds to them at a competitive rates.

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