India's tougher personal loan rules may force some NBFCs to tap bond market

L&T Finance

20/11/2023 10:05

By Siddhi Nayak and Dharamraj Dhutia
       MUMBAI, Nov 20 (Reuters) - Indian non-banking finance
companies (NBFCs), including Bajaj Finance, L&T Finance and SBI
Cards and Payment Services, are likely to tap the bond market to
raise funds following the central bank's tighter rules for
personal loans, six banking sources told Reuters.
    The rules, which raise the capital that banks need to set
aside for personal loans directly and indirectly via NBFCs, will
mean that bank borrowings for NBFCs are set to become more
expensive, pushing lenders to tap the bond market.
    Bank borrowing costs for these lenders are set to rise 25-30
basis points (bps), which will make bond market borrowings
relatively cheaper, said an official at a mid-sized NBFC.
    The official and the sources did not want to be identified
as they are not authorised to speak to the media.
    Bajaj Finance, SBI Cards, and L&T Finance did not respond to
a Reuters' email seeking comment.
     "The NBFCs which were heavily reliant on bank borrowings
will now will have to raise funds from the capital markets,"
said Umesh Revankar, executive vice chairman at Shriram Finance.
    The company will look to raise 50 billion rupees through
retail deposits, external commercial borrowings, and capital
markets for the rest of the fiscal year, Revankar said.
    Refinitiv AAA-rated NBFC bond yields are between 7.75%-7.95%
for two-year to five-year papers, while the three-year marginal
cost of lending rates for top banks is in the 8.75%-9.25% range.
    The gap in the cost of funds via banks and bond markets will
widen further now.
    The momentum of bank lending to NBFCs, other than those that
lend to segments identified as priority sectors for lending, is
likely to moderate, ratings agency CareEdge said in a note,
adding highly-rated NBFCs will move towards the capital markets.
    Banks' credit exposure to NBFCs stood at 14.2 trillion
rupees in September, a 26.3% year-on-year growth, compared to
overall bank credit in India, which grew about 15% over the past
year.
    NBFCs will look at options to raise funds at the most
affordable rates, while keeping some portion of their borrowings
with banks, said Sumit Bali, group executive and head - retail
lending at Axis Bank.
    With higher borrowings from NBFCs, rates on such bond market
borrowings may also move up by at least 10 bps, especially for
entities reliant on unsecured lending, said Raju Sharma, head -
fixed income at IDBI Mutual Fund.
    
($1 = 83.2440 Indian rupees)

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Rapid growth in bank loans to NBFCs    https://tmsnrt.rs/3QNlZtr
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 (Reporting by Siddhi Nayak and Dharamraj Dhutia; Editing by
Sonia Cheema)
 ((Siddhi.Nayak@thomsonreuters.com; +91 22 6921 7848; Reuters
Messaging: Twitter: https://twitter.com/siddhiVnayak))