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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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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