Non-banking financial companies, or NBFCs, need to take additional risks while raising funds as they are faced with higher rates of interest unlike the banks and they need to deploy these funds to generate justifiable returns, says Banking Frontiers in its cover story. The story cites 3 primary sources of funds for NBFCs: For long term fund needs, they get term loans from banks, after deciding on the amount of funds to be deployed in normal operations. Bonds are another common route to reduce the interest rate on the sources of funds. For short term fund needs, they raise funds through commercial paper (CPs), which are short term unsecured promissory notes with a tenure of 3-12 months.
Mahindra Finance, one of India’s leading NBFCs with a rural focus, says that the company raises funds through multiple borrowing sources with a diversified set of investor base. The article quotes Ramesh Iyer, vice chairman & MD: “Banks have always been a significant source of borrowing for us. During the years with debt capital markets maturing, the share of issuance of NCDs has risen. Apart from these two major sources, we also raise funds through fixed deposits and public issuance of debentures as well as short term funds through commercial paper and inter corporate deposits. We also have a mechanism of raising funds through the securitization route as well. In addition, we are exploring funding from offshore market through masala bonds and ECB route,” he explains.
The article also carries views of V. Lakshmi Narasimhan, MD & CEO at Shriram City Union Finance. He says bank borrowings constitute the highest share of resources for the company and were at 59% of the funding mix as of June 2018. He adds that while deposits are integral to the company’s plans as a resource base, “their share in the mix has been declining. We have been making the most opportune use of the money market, however.”
– Manoj Agrawal, Group Editor, [email protected]
