NBFCs Line Up For Foreign Borrowings As Domestic Interest Wanes
The NBFCs have turned to foreign borrowings to meet funding needs as domestic interest wanes, with $5.5 billion raised in October 2024 alone, up from $735.56 million last year.
Growing interest from global investors and weak appetite in the domestic market has driven Indian corporates, especially financial services companies, to the overseas market for their funding needs, three merchant bankers told NDTV Profit.
External commercial borrowings by Indian corporations rose to $5.5 billion in October, sharply higher than $735.56 million in the same period a year ago, according to data from the Reserve Bank of India.
Nearly $1.5 billion of these ECB borrowings came from financial services companies. In the same period a year ago, financial companies had raised over $50 million through this route.
This sharp jump has come as the Reserve Bank of India has been asking NBFCs to reduce their dependence on bank borrowings and diversify their funding resources. In November 2023, the central bank had raised risk weights on bank lending to retail-focused NBFCs.
"Issuers are raising funds overseas as it helps in diversification and also gives them a sizeable amount as levels are broadly the same in the domestic and overseas markets," according to a debt merchant banker.
For instance, Muthoot Finance raised $470 million (approximately Rs 3,990 crore) through the sale of dollar-denominated bonds maturing in four years and six months at a semi-annual coupon of 6.3750%. In comparison, the company borrowed Rs 1,100 crore through an October 4, 2029 bond at a coupon of 8.78%.
"Issuances by financial services in the ECB market have clearly gone up as global investors are warming up to such companies post the crisis in 2018-19," the debt merchant banker quoted above told NDTV Profit on the condition of anonymity. In the fiscal 2018-19, the credit markets had undergone a crisis after the failure of Infrastructure Leasing & Financial Services Ltd.
Other non-banks, such as Cholamandalam Investment and Finance Company, Manappuram Finance, CreditAccess Grameen, and Aditya Birla Finance, also met their funding needs through this route.
This phenomenon is also evident in these companies' borrowing mix. In the quarter ended September, CreditAcess Grameen's borrowing through ECBs rose to 18.3% from 17% a quarter ago.
Merchant bankers expect this trend to continue with issuers such as PNB Housing Finance, Shriram Finance, Tata Capital, and Cholamandalam Investment lining up their offshore borrowings in 2025.
