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Informist, Monday, Sept. 30, 2024

MUMBAI – Non-banking finance companies are tapping other avenues to fund their growth as banks' credit exposure to non-bank lenders has declined due to tightened regulations, CRISIL Ratings said in a report Monday. The dependence of non-banking finance companies on bank credit has shifted to market borrowing such as non-convertible debentures, commercial papers, foreign currency borrowings, and securitisation, it said.       

A study of more than 110 non-bank lenders rated by CRISIL Ratings, accounting for above 95% of the sector's assets under management, indicates the share of bank loans in the sector's borrowings declined 60 basis points to 47% for the June quarter. The decline is more for the 'A and below' category-rated players compared with those for the 'AAA' and 'AA' rated financiers. Other avenues accounted for 16.1% of the sector's borrowings for the quarter.  

Last November, the central bank increased the risk weight on credit exposure of banks to non-banking finance companies by 25 percentage points, over and above the risk weight associated with the rating of these companies to combat the increasing dependency of non-banking finance companies on bank loans. 

The slowdown in bank credit followed by the RBI norms has made the bond market and securitisation more attractive. "While banks will remain the dominant funding source for NBFCs (non-banking finance companies), the bond market will gain market share over the near to medium term," Malvika Bhotika, director at CRISIL Ratings, said in the report. "In fact, the share of NCDs (non-convertible debentures) in the sector's borrowings rose 30 bps to 28.5% in June quarter, in line with the 'AAA' and 'AA' category rated entities."

"Those rated in the 'A and below' categories are attempting to tap the market, too, as share of NCDs in their overall borrowings is up 40 bps during the quarter, but on a much smaller base," Bhotika said. She also said the rating agency expects the bond market to become more attractive over the next few quarters, given the expectation of a repo rate cut.  

Securitisation, one of the other preferred alternative routes for non-bank lenders, helped 'A and below' rated companies to strive against the declining share of bank borrowings, according to Rounak Agarwal, associate director at CRISIL Ratings. The share of securitisation rose to 30 bps in the June quarter, he added.      

On the other hand, top-rated companies have relied more on foreign currency borrowings, whose share rose 50 bps to 5.3% in their overall borrowings for the June quarter, Agarwal said. Foreign currency borrowings are preferred by them due to the advantage of lower hedging costs.  End

Reported by Christina Titus 

Edited by Deepshikha Bhardwaj

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