Indian NBFCs double fundraising via bonds in five days as bank rate gap widens

Indian non-banking financial companies (NBFC) have raised around 100 billion rupees ($1.21 billion) via bonds in the past five days, double that of the preceding work week, with more such issues likely as interest rates in the debt market remain low, five bankers said. Lower interest rates for such organisations typically help bring down lending rates, which in turn can push demand up.

"There is a rate arbitrage, which the NBFCs will look to utilise between MCLR-linked bank loans and short-term capital market instruments, as short-end yields are edging lower," said Nachiket Naik, head of corporate lending at Arka Fincap, a Mumbai-based NBFC. The Refinitiv benchmark three-year yield for AAA-rated companies is around 7.45%, down 30 basis points this fiscal year, as compared to the benchmark three-year marginal cost of lending rate for State Bank of India that stands at 8.70%.

The spread between lending rates and yields further rose as the latter eased after banking system liquidity improved. Large borrowers over the last week include State-run IRFC, which raised 25 billion rupees and NHB which raised 20 billion rupees via over three-year bonds. Institutions coming to market soon include HDFC, which aims to raise up to 100 billion rupees via two-year bonds, LIC Housing Finance which plans to raise 15 billion rupees through five-year bonds this week and NABARD which will raise 50 billion rupees. Here are the details of some of the bond issues completed, as well as planned, as reported by Reuters.

The list is not exhaustive. Issuer Tenor Coupon (in %) Quantum (in Status bln rupees) HDFC 2-yr 7.8 100 Bids invited LIC Housing 5-yr To be decided 15 Bids invited Shriram Housing Finance 3-yr and 6 mnts 8.8 1 Bids invited Shriram Finance 9-yr and 5 mnts To be decided 2 Bids invited NABARD 3-yr and 5 mnts To be decided 50 Bids invited Poonawalla Housing Finance 18 mnts 8.6 2 Issue completed Avanse Financial Services 3-yr 9.52 5 Issue completed Avanse Financial Services 3-yr and 1 mnt 9.52 2 Issue completed HDB Financial Services 2-yr 7.93 6 Issue completed HDB Financial Services 2-yr and 10 mnts 7.93 4 Issue completed Navi Finserve 18 mnts 9.25 0.75 Issue completed Axis Finance 5-yr 7.95 5 Issue completed L&T Finance 5-yr 7.9 1.42 Issue completed L&T Finance 10-yr 7.85 2.5 Issue completed Fedbank Financial Services 6-yr and 11 mnts 9 2 Issue completed Bajaj Housing Finance 3-yr 7.78 5 Issue completed Sundaram Home Finance 2-yr 7.84 2 Issue completed IIFL Samasta Finance 3-yr and 6 mnts 7.85 1.5 Issue completed IRFC 3-yr and 5 mnts 7.23 25 Issue completed NHB 3-yr and 2 mnts 7.22 20 Issue completed "We believe that short-term interest rates will start seeing some (more) reduction.

However, banks, on the other hand, have still not fully passed on the 250-bps rate hike and we may see some uptick in rates on the bank lending side," said Sachinn Joshi, group chief financial officer at L&T Finance, that last week raised 3.92 billion rupees via bonds. Alongside the interest rate advantage, appetite for corporate debt is also seen improving as the central bank's recent move to withdraw currency notes of 2,000 rupee denomination is expected to boost liquidity and aid shorter tenor yields. "The increased liquidity is expected to boost savings and investments. Consequently, it is quite possible that a significant portion of the re-entered notes may end up being invested in mutual funds," said G. Pradeepkumar, CEO at Union Asset Management.