India NBFCs' borrowing costs to rise in FY24 despite RBI rate pause, says CLSA

Piramal Enterprises

14/06/2023 04:53

** Cost of funds will rise for non-banking financial
companies (NBFCs) in 2023-24 despite two back-to-back rate
pauses by Reserve Bank of India (RBI), says global brokerage
firm CLSA
    ** RBI has hiked the repo rate by 250 basis points since May
last year to 6.5%, before pausing rate hikes in the last two
policy meetings
    ** CLSA estimates less than 50% of borrowings for most large
NBFCs at floating rates, where rate transmission happens with a
lag of 1-12 months
    ** Among NBFCs, Fusion Microfinance has the highest share of
floating rate borrowings at 94%; 74% for SBI Cards; 39% for LIC
Housing Finance
        ** Also 20% of NBFCs' non-convertible debentures (NCDs)
are maturing in FY24 and FY25 each which bear coupon rates "much
below" current levels, implying a refinancing hit - CLSA
  
    ** Incremental cost of NCDs unlikely to come off with repo
rate cuts - CLSA 
    ** Expects bank borrowing costs for NBFCs to reprice upwards
in first half of FY24 
    ** Borrowing costs likely to decline in first half of FY25,
assuming RBI starts cutting rates in Q3FY24
    ** SBI Cards is brokerage's preferred pick; CLSA sees most
pressure for LIC Housing Finance
    
    


 (Reporting by Bharath Rajeswaran in Bengaluru)
 ((bharath.rajeswaran@thomsonreuters.com ; +91 9769003463))