While NBFCs were the biggest recipients of incremental bank advances in 2022, credit markets are expected to tighten as demand increases due to capacity expansion. Also, the RBI has provided around Rs 1 lakh crore of additional liquidity through its targeted longterm repos, which will start getting redeemed this year.
Indiabulls Commercial Credit is seeking to raise up to Rs 1,000 crore through the issue of non-convertible debentures (NCDs) yielding as much as 10. 3%. The bonds have a tenure of two, three and five years. The issue is currently open and will close on January 27. IIFL is also looking to raise up to Rs 1,000 crore through secured NCDs, offering up to 9% yield. The company offers bonds with tenures ranging from two to five years.
Last week, Cholamandalam Investment and Finance Company obtained an ‘AA+’ classification from India Ratings for issuing Rs 2,000 crore worth of bonds. Among others, Edelweiss Financial Services, Muthoot Fincorp and Incred Financial have filed offer documents with Sebi for debt issues.
According to India Ratings, the shift of funding from banks to debt instruments for NBFCs is set to gaintraction in the current fiscal.
Given the sharp rise in short-term interest rates in capital markets since Q1FY23, NBFCs had preferred banks to seek a large proportion of liability funding over tapping capital markets. This led to crowding out for small NBFCs as large players flock to banks for their funding needs. This has eventually resulted in a higher cost of funds for small entities.
According to a senior public sector bank official, banks are now more comfortable lending to finance companies for two reasons: First, the RBI has increased its supervision and regulation of NBFCs and brought them on a par with banks. Second, the overall asset quality of NBFCs has improved as finance companies are doing more retail.