Monday, January 9, 2023

As bank lending rates climb, NBFCs are looking for funding in the bond markets

NBFCs eye funds from bond markets as bank loan rates rise

 MUMBAI: Non-banking finance companies (NBFCs) are looking to raise funds in advance of another rate hike by issuing a variety of bond issues for the retail market.

Although NBFCs received the majority of incremental bank advances in 2022, credit markets are expected to tighten as capacity expansion increases demand. Additionally, the RBI has provided approximately Rs 1 lakh crore in additional liquidity via its targeted longterm repos, which will begin to be redeemed this year.

Indiabulls Commercial Credit intends to issue non-convertible debentures (NCDs) yielding up to 10 percent in order to raise up to Rs 1,000 crore. 3%. The bonds are valid for two, three, and five years, respectively. The issue will end on January 27 and is currently open. In addition, IIFL wants to raise up to Rs 1,000 crore through secured NCDs with a yield of up to 9%. The company sells bonds with terms of two to five years.

For issuing bonds worth Rs 2,000 crore, Cholamandalam Investment and Finance Company received an "AA+" rating from India Ratings this past week. Edelweiss Financial Services, Muthoot Fincorp, and Incred Financial, among others, have offered to settle debts with the Securities and Exchange Commission.

India Ratings asserts that the NBFC funding shift from banks to debt instruments is anticipated to accelerate this fiscal year.

NBFCs had preferred banks to seek a large portion of liability funding rather than tapping capital markets in light of the sharp rise in short-term interest rates in capital markets since Q1 of the current fiscal year. As a result, small NBFCs were squeezed out as large players flocked to banks for funding. Small businesses now face higher funding costs as a result of this.

A senior official from a public sector bank said that two things have made banks more comfortable lending to finance companies: To begin, the RBI has elevated NBFCs to the same level of regulation and supervision as banks. Second, as finance companies expand into retail, their overall asset quality has improved.

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