NBFCs: NBFCs tap retail NCDs to diversify borrowing

Banks have tightened their lending to NBFCs and investors have become wary on investing in NBFCs.

Apr 03, 2019, 05.10 PM IST

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NBFCs cost of funds have gone up post IL&FS issue. Their blended cost has gone up 0.75%-1%.

Mumbai: With

banks

going slow on lending to non-banking finance companies,

Magma Fincorp

After the crisis, banks have tightened their lending to NBFCs and investors have become wary on investing in NBFCs. Magma Fincorp is looking to raise up to Rs 500 crore offering coupon at 10.25% to 10.75% for various tenors per annum. Shriram City Union is looking to raise up to Rs 750 crore by offering coupon at 9.55% to 9.75% per annum.

“Magma has traditionally been dependent on bank lines for funding with 70% of the funding has been on banks,” said Kailash Baheti CFO Magma Fincorp. “There is crowding out at various banks and after IL&FS crisis, NBFCs were flocking to banks so there was need for diversification of borrowing.”

When Magma assessed raising funds through public NCD 15 months back the cost was high and so we postponed it. The cost of raising funds through retail NCDs is at par with bank term loans at 10.5%.

NBFCs cost of funds have gone up post IL&FS issue. Their blended cost has gone up 0.75%-1%.

For Magma, incremental borrowing for the year would be Rs 5,000 crore to Rs 7,000 crore, said Baheti. The company will look to raise Rs 1,000 crore to Rs 1,200 crore through commercial papers that will be maturing this quarter.

“We would like to cap CPs at 10% of the borrowing and take retail borrowing to 10%,” said Baheti.

Magma has seen slowdown in demand for finance in cars and commercial vehicle segments. This is when SME and housing has been growing because of non-availability of funds from smaller NBFCs. Large housing finance companies like DHFL are going slow in disbursing loans.

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Author: Prakash Poojary

Business Analyst

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