After a successful year, the non-banking financial companies (NBFCs) are staring at high borrowing cost and narrowing funding avenues, a report has warned. Recognised to have the potential to “disrupt the financial sector and throw up surprises” by the Reserve Bank of India, the NBFCs are expected to see an increase by a minimum of 45 basis points in the financial year 2018-19 based on the current prevailing market rates, ICRA said in a report.
Loans accounted for nearly 40% of all new corporate loans made by banks in FY18, showed data released by the central bank. Among all sectors in industry and services, NBFCs also saw the steepest jump in loans outstanding, growing 27% y-o-y. Credit rating agency ICRA said that the retail-focused NBFCs would also require about Rs 3.8-4 trillion of fresh debt funding during FY19 to support their envisaged portfolio growth of about 20% in the same period.
Mutual funds’ (MFs) debt funding to NBFCs more than doubled to Rs. 2.2 trillion from about Rs 1.0 trillion between September 2017 and March 2018. The increase was largely observed in short-term funding, which almost tripled between September 2017 and March 2018, the report added. The report said that the large NBFCs can tap public issue route; the real challenge is with small and mid-sized ones.
“Larger NBFCs could tap the public issue route, which to an extent could alleviate funding related pressures; the impact of the above concerns, namely funding cost and sourcing could be higher for the smaller and mid-sized NBFCs in FY2019,” the report added.
The recent developments in the foreign portfolio investors (FPI) debt space are partly negative and could impact debt funding to NBFCs via this route. While FPI funding is likely to impact private debt placements for most players, the impact would be profound for smaller or new-age NBFCs, which raise lower-ticket loans, as they would be constrained to find a larger and diverse investor base for their issuances, going forward, ICRA said.
In February, some NBFCs received set back when government’s Financial Intelligence Unit (FTU) released a list of 9,491 NBFCs as ‘High-Risk Financial Institutions’ for their non-compliance with Prevention of Money Laundering Act (PMLA).