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50 top NBFCs need ?70000 crore in November to redeem commercial papers: Crisil

Since the IL&FS defaults, it can be noted that NBFCs and housing finance companies (HFCs) were facing a crisis of confidence, sending call money rates higher and overall liquidity tight.

Since the IL&FS defaults, it can be noted that NBFCs and housing finance companies (HFCs) were facing a crisis of confidence, sending call money rates higher and overall liquidity tight.

Mumbai: As top 50 non-banking finance companies need ?95,000 crore to repay debts, of which ?70,000 crore are commercial papers maturing this month, and banks will have to lend more to the sector to avoid defaults, says a report.

Since the IL&FS defaults, it can be noted that NBFCs and housing finance companies (HFCs) were facing a crisis of confidence, sending call money rates higher and overall liquidity tight. This forced RBI to open a special window for banks but denied the same to NBFCs and also announce ?36,000 crore of OMO purchase in October and ?40,000 crore in November, which has brought in some sanity to system.

The crisis of confidence comes even as asset quality of NBFCs is largely steady.

“As many as 50 large NBFCs have debt repayments worth ?95,000 crore due in November, of which, ?70,000 crore are commercial papers (CPs) maturing,” said Krishnan Sitaraman, a senior director at the agency, adding some of them are well- placed to meet the debt repayments without drawing down on bank lines, others may have to do so, at least partially.

The report, however, did not say how much of short- tenor debt is due this month at the industry level. But media reports last week had pegged the system wide redemption of ?60,000 crore between November 1 and 9 alone.

In October, the rollover rate of CPs issued by these 50 largest NBFCs was only around 40% of the average monthly issuances between June and August 2018. Consequently, NBFCs were forced to tap banks for funds.

In the past, issuances by financial sector entities have typically been fully rolled over or refinanced on maturity. Nevertheless, CP volumes have increased in the last week of October and if the trend continues, rollover rates should be higher in November.

Commercial paper or CPs are short-term debt with one to three months maturity.

“NBFCs with strong parentage and those belonging to large corporate groups have managed to partially roll over their CPs and raise funds from banks to a greater extent compared with peers, although they have had to pay higher interest rates,” said Sitaraman.

“Selective lending by mutual funds means in the weeks ahead, continued and times access to bank funding will be critical for NBFCs,” he added.

Though most NBFCs have adequate liquidity buffer in the form of cash/cash equivalents, and sanctioned unutilised bank lines to manage mismatches in their asset-liability maturity profiles, in the past one month, some of them have found it tough to quickly drawdown on bank lines, which led to some liquidity stress.

On top of it, market sentiment continue for select NBFCs, which are into housing finance and wholesale lending, forcing them to the securitisation market to get liquidity.

Another funding avenue gaining traction is retail bonds through which NBFCs have already raised around ?27,000 crore between April and September 2018, against ?5,000 crore in the whole of fiscal 2018.

Consequently, the agency also expects credit growth to slow down in near to medium term.

Ajit Velonie, a director at the agency warned that though current delinquencies are not high due to stringent credit appraisals and risk-mitigating mechanisms, if the funding situation does not stabilise over a period of time, asset quality challenges could manifest among MBFCs.

For instance, there has been a spike in defaults in the loan against property segment moving from 1.9 to 2.7% in the past two years.

This story has been published from a wire agency feed without modifications to the text.