NBFCs opt for retail NCDs as mutual funds cut long-term lending

Published: April 17, 2019 2:49:43 AM

Non-banking financial companies (NBFCs) have been relying on raising funds through retail issuances of non-convertible debentures (NCDs), paying higher coupon rates as long-term lending from mutual funds and commercial banks remain subdued.

NBFCs opt for retail NCDs as mutual funds cut long-term lending NBFCs opt for retail NCDs as mutual funds cut long-term lending

By Shashank Nayar

Non-banking financial companies (NBFCs) have been relying on raising funds through retail issuances of non-convertible debentures (NCDs), paying higher coupon rates as long-term lending from mutual funds and commercial banks remain subdued.

The long-term funding (more than one-year) by mutual funds to NBFCs fell by 13.8% to `68,501 crore in February against `60,204 crore in September, 2018, according to data by the Securities and Exchange board of India (Sebi). Funding towards the sector has dropped by nearly `4,000 crore in February against the funding received in January.

“NBFCs currently are in need of long-term funds which mutual funds as of now are not willing to lend as they are still cautious and are willing to lend to NBFCs only with a strong balance sheet and robust promoter backing,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global.

READ ALSO | Wipro mega share buyback moves ahead, Rs 10,500 crore plan gets board nod; key figures from Q4 results

The interest rates offered by NBFCs for retail NCDs have ranged between 8% to 10.5% for the five-year paper, which have been higher than the rates offered last year. 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%.

JM financial on Tuesday launched a retail NCD issue, offering a 10.5% coupon rate for the five-year tenor paper to raise up to `1,000 crore. The non-bank lender plans to conduct three more retail issuances this year.

“Since mutual fund flows have remained subdued, the coupon rate is higher to attract retail investors, making it a good time for investors to take the benefit of higher returns,” said Vishal Kampani, MD, JM Financial. “Once mutual fund flows begin to enter the NBFC space, the coupon rates are most likely to go down.”

NBFCs like L&T Finance, Shriram Transport and Magma Fincorp have recently come up with retail NCD issuances. However, NBFCs rated ‘AAA’ have been able to raise funds at a cheaper rate, down by 26 bps in March compared to February, while it has been 17 bps higher since September 2018 when liquidity constraints were at its peak, according to experts at Care Ratings.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop