By Shashank Nayar Non-banking financial companies (NBFCs) are paying more to raise funds via non-convertible debentures (NCDs), with the average coupon rate having seen an increase of 80-100 bps over the past year or so. NBFCs have been raising more funds from the NCD market since commercial banks appear to have slowed in extending credit to the sector. For instance, Shriram Transport is now paying 130 basis points (bps) more than it did a year back. In April, the lender mopped up money at a rate of 9.50%. In March 2018, it had paid a coupon of only 8.10%. Again, L&T finance raised funds in April 2019 at 9% which was a significantly higher rate than 8.25% it had offered in March 2018. Also read | HDFC Bank shares close 2% lower after reports of stake sale by PE giant KKR The higher cost of funds is likely to have some impact on the interest margins of these non-bank lenders unless they are able to pass this on to their borrowers. The management at Magma Fincorp, which had raised money in April at a cost that was 30 bps more than in March last year, said the cost of funds had increased by 70 bps over the six months to December, 2018. \u201cThe weighted average cost of funds was higher in Q4FY19,\u201d Kailash Baheti, CFO of Magma Fincorp, said. The company's net interest margins (NIMs) fell by 60 bps q-o-q in Q3FY19 to 8.2%. YS Chakravarti, executive director, Shriram City Union Finance, said, \u201cWhile we still rely majorly on banks for our funding purposes, the reason we are going ahead with issuing NCDs even at a higher cost is to lower our risk at times when banking system liquidity is a problem and to fulfil the central bank's borrowing framework.\u201d Also read | HDFC Bank shares close 2% lower after reports of stake sale by PE giant KKR However, the cost of funds for AAA-rated NBFCs has come down by 26 bps in March compared to February this year, while it has been 17 bps higher since September 2018 when liquidity constraints were at its peak, according to experts at Care Ratings.