Bank borrowings of NBFCs slow down due to higher rates, lower demand

They are borrowing from money market which is sufficient to meet lower demand

With banks’ lending remaining high, non-banking finance companies are increasingly look for alternative ways to meet their funding requirement. As a result, bank credit growth to NBFC sector has dropped to single digit level in April as compared to 35 per cent growth in the same period of the previous year.

According to market participants, NBFCs are increasingly borrowing money through privately placed non-convertible debentures (NCDs) which are of long term in nature and short-term commercial paper (CP).

This has clearly reflected in sectoral credit deployment data of Reserve Bank of India (RBI) for the month of April. According to the data credit to NBFCs increased just by 5.2 per cent in April compared with the increase of 34.4 per cent in the same month last year.   

Market players also said lack of credit demand from NBFCs was also a reason for lower demand for funds by these entities from bank.

V Ravi, chief financial officer, Mahindra Finance said, ''bank borrowings are linked to base rate and at the base rate of even 9.7 per cent adding monthly compounding resulting in the rate of 10.25, borrowing via NCDs is a cheaper option where the rates are in the range of 8.75 per cent.'' Similar is the case with CPs he said which currently offers the similar rate of interest, he said. ''If banks reduce base rates then there could be again a pickup in banks favour'' he added.

Lakshmi Narasimhan, chief financial officer, Magma Fincorp also concurred with the views expressed by Ravi saying money market borrowing is a better option for NBFCs currently. He also said that due to slower growth in primary (auto) sales there is not much demand for credit.