LICHFL looks to raise ` 50,500 cr

HFCs, NBFCs in bid to shock- proof assets

A host of non- banking finance companies ( NBFCs) and housing finance companies ( HFCs) are raising capital to strengthen their balance sheets tp guard against unexpected asset quality shocks or to finance organic and inorganic business opportunities. The latest to announce capital raising plans was LIC Housing Finance, which on Wednesday said it will seek shareholders' approval in the annual general meeting this month to raise up to Rs 50,500 crore by issuing debt securities or other hybrid instruments on a private placement basis.

So far leading non- bank lenders, such as Shriram Transport Finance, Mahindra & Mahindra Financial Services, L& T Finance and HDFC have announced or already raised capital. More NBFCs are expected to approach the capital markets to raise funds as the sector would take more than a year to recover from the fallout of the Covid- 19 pandemic. The sector is nearly two years into its crisis, which was triggered by the default of IL& FS.

LIC Housing Finance’s annual general meeting ( AGM) will be conducted through video conference on September 28. The approval of the members is being sought by way of "special resolution, authorising the board of directors to issue NCDs and/ or any other hybrid instruments which can be classified as being Tier II capital under the provisions of the Housing Finance Companies ( NHB) Directions, 2010, up to an aggregate amount not exceeding Rs 50,500 crore on a private placement basis,” the company said in a regulatory filing.

LIC Housing Finance said its overall borrowing power is of Rs 3 lakh crore and the proposed fund raise plan is within the limit.

Analysts feel that equity issuance may pick up in the near- term as issuers seek to bolster capital positions.

A. M. Karthik, vice president and sector head, financial sector ratings, Icra Limited said, "Banks and NBFCs are highly leveraged entities with leverage of 4- 10 times and generally operate at thin operating profitability of 2- 4 per cent of assets. Ability to absorb even a 45 per cent loan loss without eroding capital will be challenging task for many lenders and hence strong capital position or fresh capital raising to absorb expected losses will remain a key driver for credit profile of the lenders."

"In particular, the NBFCs, though they are fairly comfortable on current capital position, based on the extent of estimated slippages, they may need to raise equity capital of upto Rs 2,500035,000 crore in the current fiscal to shore up their solvency and also provide comfort to their lenders on their ability to absorb shocks. Icra also notes that the pre- provision profits of non- banks are about 4 per cent, which would also support their capital position as assets under management growth is expected to be negligible, in the best- case scenario, with a bias towards a contraction, as the impact of pandemic may linger around longer in the current fiscal. Further, for NBFCs, the funding constraints would remain a key concern for the sector in the near to medium term,” added Karthik.