More than a third of the debt non-bank lenders raised from mutual funds comes up for repayment in the next three months.
Mutual funds have Rs 3.2 lakh-crore exposure to non-bank financial services companies, and Rs 1.3 lakh crore of this matures over the next three months, according to a Credit Suisse report. Of this, 43 percent is in the form of commercial paper, and 80 percent of that is maturing in the quarter ended June, it said.
That comes when most of the non-bank lenders are finding it tough to raise funds from the credit market as borrowing costs have increased after the IL&FS defaults. These, Credit Suisse said, have not benefitted from the central bank's record liquidity infusion and repo rate cuts since September 2018. The spread for NBFC paper over corporate bonds is still 40-50 basis points higher, it said.
Inflows into debt funds have fallen since August and the recent markdowns and extension of schemes is likely to keep that under pressure, according to the report. Mutual funds have also trimmed exposure to non-bank lenders to 27 percent of assets from 34 percent in August. And their exposure to NBFC commercial paper is down 40 percent—it now accounts for 43 percent of mutual fund lending against 55 percent earlier.
Wholesale debt markets appear to be differentiating among NBFCs, according to Credit Suisse, and its analysis of bond issuance data for 17 large non-bank and mortgage lenders found the overall quantum of bond issuances have picked up in February and March 2019. But HDFC Ltd. and LIC Housing Finance Ltd. accounted for 60 percent of bond issuances, it said.
“Even as those perceived to be strong/backed by parent (HDFC, LIC Housing Finance Ltd., Bajaj Finserv Ltd., Mahindra & Mahindra Financial Services Ltd.) have been able to tap bond markets, issuances by the likes of Dewan Housing Finance Corporation Ltd., Indiabulls Housing Finance Ltd. and Edelweiss Financial Services Ltd. have been minimal.”
Under Pressure
With mutual funds reducing exposure to the sector, the quantum of private bond issuances has declined. The companies, the report said, are making up for that by resorting to alternative funding sources—external commercial borrowings, public bond issuances and asset sell-downs.
The overall quantum of issuances, however, is still too low to support disbursement growth, the report said. “As increased sell-downs lead to contraction in the share of retail loans on book, credit ratings may come under watch.”
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