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MUMBAI : Top-rated non-bank lenders and housing financiers, backed by strong parents, are trying to negotiate lower interest rates with banks as the non-banks are left with few avenues to lend.

Some are even prepaying their lenders and also not willing to roll over the debt, citing limited lending opportunities, said two bankers aware of the development.

One of the two bankers cited the example of Tata Capital Ltd, which recently repaid lenders about 2,500 crore of loans and is negotiating a steep cut in rates.

“A few non-bank lenders are demanding rates of 6.1-6.2%. These companies are saying that they already have surplus funds, but there is a critical lack of demand from borrowers, leaving them with little choice," the banker said.

According to the banker, large non-bank financiers, who were earlier getting loans on the one-year MCLR (marginal cost of funds-based lending rate), are now seeking loans below 7%.

The median one-year MCLR for all banks stood at 7.58% as of July, showed data from the Reserve Bank of India (RBI).

While public sector banks’ rate stood at 7.53%, that of the private sector and foreign banks stood at 8.83% and 6.84%, respectively.

Rajiv Sabharwal, chief executive of Tata Capital, said that most of the company’s payments were scheduled and the rates for these loans are linked to various tenor MCLRs and have negligible spreads.

“Churn of liabilities is a regular phenomenon with NBFCs/HFCs. We continue to engage with banks at all points of time to explore various options that can be a win-win for all the stakeholders," Sabharwal said in an emailed statement.

A second banker at a private bank said that growth projections for non-bank lenders have come down sharply, and despite the moratorium, liquidity is not a concern for some of them.

“If there is no need for fresh loans, they are happy to repay some of the existing debt. They will not borrow if there is no productive use for the money and if there is no positive return on deployment of funds," the second banker said.

Concerns around India’s non-banks date back to September 2018 when a series of defaults by Infrastructure Leasing & Financial Services Ltd (IL&FS) shook confidence in non-bank lenders.

Most non-banks without a strong corporate parentage have since struggled due to a liquidity crunch.

In fact, non-banks also had a higher percentage of loans under moratorium than banks.

For instance, a report by Jefferies pointed out on 12 August that the moratorium loans for key non-banking financial companies (NBFCs) stood in the range of 22-76% in the second phase or between June and August.

Non-bank financiers rated AAA and above are able to raise money at a rate of 5.4-5.5% for three years from the bond market, at least 150-200 basis points (bps) lower than bank lending rates.

One basis point is one-hundredth of a percentage point.

With such stark difference in rates, it is no wonder that these large NBFCs are willing to repay bank loans for cheaper money.

According to Ajay Manglunia, managing director and head of institutional fixed-income at JM Financial Products, the bond markets are more efficient as far as transmission is concerned in an environment with low credit offtake.

“Top-rated companies are able to raise money at a better rate than bank rates. So, those who have bank exposures would want to prepay these loans rather than shell out more interest," said Manglunia.

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