Defaults by Infrastructure Leasing & Financial Services (IL&FS) in September 2018 led to a dip in investor confidence towards lending to non-banks and a consequent spike in market rates and a slowdown in commercial paper (CP) issuances for non-banks, according to a study by Assocham-Crisil.
“Interest rate spreads increased for players with relatively higher asset liability mismatch (ALM) and high exposure to real estate lending," it said.
According to the study, risk perception remained high for some players as they witnessed elevated CP rates and faced challenges in raising fresh funds from the market.
These players who witnessed dip in investor confidence have had relatively higher proportion of exposure to wholesale segment particularly real estate lending, it said. On the other hand, the report pointed out, players with strong parentage and relatively higher proportion of their loan book focussed on retail segments were seen to be relatively better off.
“Primary non-convertible debenture (NCD) issuances witnessed a decline of around 50% year-on-year (y-o-y) during the first half of fiscal 2019 but increased significantly in the second half to lead to only 4% decline on an annual basis. Despite increase in interest rate spreads, non-banks raised NCDs to reduce asset liability mismatch," it said.
The Assocham-Crisil study attributed the sharp increase in NCD issuances during the second half of FY19 to inability of players to rollover maturing short-term commercial papers (CP) in debt capital markets.
“Although NCD issuances increased significantly during the second half of FY19, not all players were able to raise funds from the debt capital market. Mid- and small-sized players (loan book size less than ₹30,000 crore) found it difficult to raise money through NCDs," it said.
According to the report, as debt capital market funding remained a challenge, non-banks resorted to securitisation which more than doubled in fiscal 2019.
“Going forward, securitisation volumes are likely to remain strong due to capital market funding challenges for non-banks," said the Assocham-Crisil study.