Fcnr(B) Loans Find Favour With Nbfcs

Non-banking finance companies (NBFCs) are swapping their high-cost rupee borrowings to low cost FCNR (B)-backed loans from commercial banks.

The move is expected to bring down the cost of consumer loans and automobile finance by around 200 to 300 basis points, which currently rule as high as 24 per cent. The falling of interest cost on the lending side will give a fillip to automobile purchases, which has stagnated at least in the premium segment.

The NBFCs latest strategy is raising debt in dollars at 12 to 13 per cent which includes the hedging cost as against rupees which costs anywhere between 15 to 17 per cent. Leading NBFCs plan to convert their cash-credit facility from rupees into dollars. Instead of rupee loans they are approaching banks for FCNR(B) loans to meet their cash-credit requirements.

 

The lead has been taken by Kotak Mahindra Finance (KMFL) which has converted Rs 30 crore of its total cash-credit limit of Rs 325 crore to a dollar liability at 12 per cent inclusive of the hedging cost. KMFL has set no upper limit to the extent of funds which will be converted and would like to convert the entire portfolio. The savings it has enjoyed is four percentage points. KMFL is raising funds for different maturities. Apple Finance also plans to reduce its liability in high cost rupee funds and raise as much dollar funds as possible. It has applied to various banks for replacing its existing cash credit of Rs 260 crore from rupees to dollars. Apple has received quotes of Libor which is moving around 6.1 to 6.5 per cent plus a margin of around 1.5 per cent. It will first borrow for six months and later consider borrowings up to one year. Apple presently borrows in rupees at 16.5 to 17 per cent.

Other NBFCs who have approached banks are Alpic Finance, 20th Finance Corporation, Anagram Fin, and Gujarat Lease Finance Corporation for converting a part of its cash-credit limit into dollars. Many NBFCs including Lloyds Finance, Birla Global Finance and Mukund Global Finance, consider it a cheap source of funds. Madhavan Menon of Birla Global Finance says , The FCNR(B) loan is definitely attractive to NBFCs as it reduces costs by at least four percentage points. NBFCs today are looking at all avenues possible to raise funds and this is one source which will definitely be considered. KMFLs deal was completed before the CRB Capital Markets fiasco broke out. Under the present circumstances, banks have turned a little wary and have postponed disbursals of dollar funds to NBFCs till the environment stabilises. However, there are some good players in this segment and we are confident of lending to them, said a corporate dealer of a leading foreign bank.

Banks are aggressively wooing these clients and are confident about lending to better players in the sector.