2/5/2020 A year after IL&FS fiasco, funding channels for NBFCs ease but weaker players struggle - Moneycontrol.com
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Funding scenario is improving for non-banking finance companies(NBFCs) both from commercial banks and money markets, as comparedto the period of September, 2018 and early 2019, industry observers say.
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A year after IL&FS �asco, funding channels for NBFCs easebut weaker players struggle
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Following the collapse of
IL&FS Ltd in September,
2018, funding channels
had frozen for most non-
banking finance
companies (NBFCs) for
several months. But, a
year later, credit lines are
opening up slowly, but
with a catch. Only the stronger NBFCs are able to negotiate for a lower rate, others
have to pay a premium. Things, however, have improved in terms of cost and
availability of funds for non-banking finance companies (NBFCs) both from
commercial banks and money markets, as compared to the period of September, 2018
and early 2019, industry observers say.
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2/5/2020 A year after IL&FS fiasco, funding channels for NBFCs ease but weaker players struggle - Moneycontrol.com
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Scouting for safer bets
Still, only top rated NBFC that are part of well-run financial conglomerates are able to
raise money cheap. Others have to pay a 40 to 100 basis points (bps) more depending
on the tenure and quantum. One bps is one hundredth of a percentage point.
Moreover, NBFCs lending to real estate developers, housing finance companies and
vehicle financing too are having to pay a higher rate, compared with public sector
companies such as PFC, NHAI and NABARD and those lending to manufacturing firms.
“There is no credit crunch as of now. NBFCs are getting money but there is a flow of
money to safer bets,” said SV Sastry, MD and CEO, SBI DFHI.
Even for companies that part of large conglomerates, investors are demanding a
premium if the firms are into housing finance, developer loans and vehicle loans.
These segments have been hit hardest by the ongoing slowdown. L&T recently raised
funds at a coupon rate of 6.72 percent for three years, but its arm L&T Finance had to
pay 8.25 percent almost for the same maturity. Sundaram finance raised funds at
8.37 percent for ten years, Fullerton India Credit recently raised funds at
8.68 percent for five years. PSU companies such as NHAI, REC recently completed fund
raising below below 7.9 percent. Most of these issues are in the range of Rs 100 crore to
Rs 500 crore.
Banks risk averse
According to Sanjay Agarwal, Head of banking and financial services at Care ratings,
risk aversion is visible among commercial banks when it comes to funding NBFCs.
Banks lend at 8.25 percent to 8.75 percent to top rated NBFCs that are not impacted by
the demand slump. For others, bank lending rates can go upto 11-12 percent. Also,
redemption pressure on the commercial papers are less now, Agarwal said.
“Things are not as bad as they used to be in early 2019 (immediate months after the
IL&FS crisis). But, banks are wary still to lend to weaker NBFCs,” said
Agarwal. According to Agarwal, those who find it difficult to raise money are tapping
the foreign markets. Recently, truck financier, Shriram Transport Finance raised $500
million from global investors at a coupon rate of 5.375 percent with three and a half
year maturity, in the third such exercise overseas in the past six months, the Economic
Times reported on 9 January. According to Agarwal, more NBFCs are exploring the
overseas route to raise cheaper funds.
As on 20 December, Indian banks have a total exposure of Rs 7.28 lakh crore to NBFCs,
which is a year-on-year growth of 27.6 percent. In the year before that, the
corresponding growth figure was 55.1 percent.
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