Chennai: Uncertainty over interest rates and slower growth are forcing non-banking financial companies (NBFCs) to pare their fund-raising exercises by selling non-convertible debentures (NCDs) this fiscal. In 2011-12, as many as eight NBFCs raised close to Rs 6,000 crore from the retail market.
“We are certainly planning an NCD issue, but due to uncertainty in interest rate, we are yet to decide on the quantum of the bonds and, accordingly, the time,” said Oommen K. Mammen, chief financial officer of Muthoot Finance Ltd, the largest gold loan company in the country. The company raised about Rs 1,400 crore of NCDs through two tranches last year.
NCDs help in diversifying the funding profile and reduces the dependence on bank borrowing, which is one of major sources of funds for finance companies, said Suman Chowdhury, director, financial sector ratings, Crisil.
Such bond issues improve the ability of NBFCs to reach out to a wider set of investors and align their asset-liability profile better because a majority of finance company loans are fixed-rate debt of medium tenure, he said.
Shriram Transport Finance Co. Ltd cut its bond issue, expected to hit the market on 26 July to Rs 300 crore from the planned Rs 500 crore. Last year, the largest vehicle financier raised Rs 1,000 crore through bond issues inclusive of an over-subscription option of Rs 500 crore.
All eyes are on whether the Reserve Bank of India’s (RBI) will cut rates in its first quarter review of monetary policy to be announced on 31 July.
“We may not raise the entire Rs 2,000 crore worth of NCDs as approved by the board two months ago,” said Umesh Revankar, managing director, Shriram Transport Finance.
The heavy and medium commercial vehicle segment witnessed muted growth of 8.8% in June compared with 12.7% in the year-ago period, according to a recent Karvy Broking Ltd report. Any slowdown in growth first impacts freight movement and sales of heavy trucks are therefore considered an economic bellwether. In March, RBI mandated stringent norms for NBFCs raising funds for gold loans. This included the loan-to-value (LTV) being reduced to 60% from 75%, which came into effect immediately. This meant that borrowers will have to give more jewellery as collateral for the same loan amount. The LTV cap may result in slower growth for gold loan companies.
Gold loan company Manappuram Finance Ltd expects marginal growth this year and therefore may not raise capital, said I. Unnikrishnan, executive director and deputy chief executive officer of the company. Currently, the gold loan company’s capital adequacy ratio stands at 20%, while the mandated requirement is 12%.
“The board of directors have approved to raise NCDs worth Rs 600 crore this year,” said Subhasri Sriram, executive director of Shriram City Union Finance. The company raised Rs 750 crore of bonds last year.