Alpic Eyes $15m Dutch Fin Co Loan

Alpic Finance Ltd (AFL) is planning to raise $15 million denominated in dual currency through a line of credit from FMO (Netherlands Development Finance Company) to reduce its dependence on fixed deposits.

The unique feature of this facility is that of the total amount, $ 5 million will be denominated in rupee terms on which FMO will bear the exchange rate risk. This is first concrete step by any finance company to reduce dependence on fixed deposits following the restrictions introduced by the Reserve Bank.

Reserve Bank recently capped the deposit taking of NBFCs and also them to return excess deposits. Alpic will essentially be changing the character of its liability profile with this line of credit.

 

AFL officials said the pricing would be related to the market rates for dollar and rupee loans. While the rate of interest on the dollar loan would be linked to the dollar LIBOR, the rate of interest on the rupee loan will be linked to the rupee interest rate to compensate for FMO bearing the exchange rate risk.

AFL officials said the company was awaiting final clearance from the Ministry of Finance (MOF) and the Reserve Bank of India (RBI) as the line of credit is akin to an external commercial borrowing.

FMO is a development finance company and has extended loans to several finance companies in India. However, this is the first time it will be extending a rupee denominated loan.

The funds will be deployed by Alpic for lease and hire purchase. A portion of the loan will be slotted for small scale industries, medical loans, and other areas of its operations. Alpic Finance officials said the company would make use of its wide branch network across the country to extend these loans.

As with other NBFCs, AFL is also looking for ways to lower its dependence on public deposits on account of cost of funds being very high with public deposits. Various options available to NBFCs for this include securitisation and opting for lines of credit.

In the past, Alpic availed of a (Deutsche mark) 15-million loan from DEG (a German development bank) for financing imports. Other NBFCs have also opted for lines of credit. These include, SBI Capital Markets, and Twentieth Century Finance Limited.

By bringing down its cost of funds the company will be able to make available these funds to its borrowers at a lower cost.

Earlier, the Housing Finance Development Corporation (HDFC) had approached the MOF for permission to raise rupee denominated external funds. However, the MOF refused permission on the grounds that a housing finance company could not raise an external commercial borrowing.