NBFCs scout for funds, mergers
NBFCS WITH INFERIOR ASSET QUALITIES MAY NOT BE ABLE TO SURVIVE SANS A RESCUE PLAN
MUMBAI: India’s non-bank lenders, staring at ₹1.51 lakh crore debt repayments due in the next six months, are rushing to raise fresh equity and pursuing mergers with bigger peers to avert defaults, as the Covid-19 pandemic darkens the outlook for the sector that has struggled since the collapse of Infrastructure Leasing and Financial Services Ltd (IL&FS) nearly two years ago.
While the Reserve Bank of India’s Targeted Long Term Repo Operations (TLTRO) have eased the liquidity situation for some non-banking financial companies (NBFCs), especially the better-rated ones, those with inferior asset quality may find it tough to survive without rescue.
For instance, InCred, an NBFC backed by global private equity firms, including Investcorp, is seeking a merger with the wholesale NBFC business of PE firm KKR. Srei Infrastructure Finance, a prominent Kolkata-based non-bank lender, is looking to merge with a bank. In a recent interview, Hemant Kanoria, chairman, Srei Infrastructure Finance, said it is open to merging with a bank if permitted by RBI.
Large NBFCs such as Shriram Transport Finance, Mahindra and Mahindra Financial Services and PNB Housing Finance are relatively better off, but may not be free of stress. Several companies in this segment are now looking to raise money from existing investors through rights issues. “In many instances, we are witnessing that there is very little or no interest from external investors in the fundraising exercise of many NBFCs, which is forcing them to raise money internally to meet debt obligations,” a top executive at a large wholesale NBFC said on condition of anonymity.
Rural market-focused Mahindra Finance said in a statement on July 27 that it will use the proceeds of its rights issue to prepay certain outstanding borrowings of the company, augment long-term capital and resources for meeting funding requirements for the company’s business activities and for general corporate purposes. Shriram Transport Finance has already raised ₹1,500 crore in a rights issue.
Industry experts said that recently, the situation has improved to some extent. “For most NBFCs rated by us, liquidity buffers are sufficient to take care of three months of obligations, assuming no collections disbursements. Parentagebacked and higher-rated NBFCs have access to capital markets where the cost of funds has softened,” said Pankaj Naik, associate director, India Ratings.
As on June 19, outstanding bank credit to NBFCs rose 25.7% from a year ago to ₹7.98 lakh crore, although it was down 1.1% since March 27.
Naik added that collections have improved in June as compared to April and May 2020. That apart, NBFCs have seen a dip in their loans under moratorium as repayment picks up pace.
Meanwhile, new regional lockdowns and the continuing rise of Covid-19 infections are expected to hamper collections for NBFCs.
Experts said the market is gradually improving for NBFCs as mutual fund investments return to the bond market.
Although disbursements from non-banking financial companies are set to drop in FY21, they want to be prepared for the next round of growth.