Banks financing NBFCs had touched a 4-year low of 6.7% in 2024, according to RBI data. This had compelled NBFCs to tweak their funding pattern in the current financial year. And RBI has recently relaxed some lending norms, including existing tighter rules for bank loans to NBFCs, trimming risk weight requirements for banks on consumer microfinance loans and reverting to the earlier risk weight requirements.
NBFCs had recently resorted to short-term commercial papers (CP) for their cash needs as funding from major lenders had slowed down. Analysts are of the view that the funding mix for NBFCs would change in the current financial year, and they may opt for loans, especially with expected rate cuts.
FUND RAISING VIA ECB
India’s NBFC sector is now having increasing access to offshore credit. RBI had said Indian NBFCs could mobilize over $9 billion through ECBs in FY24. However, only a few players offer the risk-managed maturity structure and conditions that foreign lenders require.
With funding from banks drying, some of the top-rated private and government owned NBFCs have tapped the ECB market for raising funds. For example, PNB Housing Finance was expected to raise $100-125 million each in 2 tranches by FY25 end.
Likewise, Shriram Finance plans to raise up to $1.5 billion from the overseas market, Muthoot Finance has received the RBI nod to raise $1 billion through ECBs (it had already raised $600 million earlier this financial year via the same route).
Power Finance Corporation is now in the process of raising $200 million in ECB via automatic route and $1.06 billion via approval route. Rural Electrification Corporation, or REC, has a proposal to raise $500 million.
The other NBFCs that are in line to opt for the ECB route are HDB Financial ($250 million), Cholamandalam Finance ($250 million), Poonawala Fincorp ($115 million), Tata Capital Housing Finance ($100) million and Manappuram Finance ($100 million). Piramal Finance had raised $150 million from international capital markets in October 2024.
One notable effort in obtaining funding through the ECB route has been that of SMFG India Credit (formerly Fullerton India Credit), which has successfully raised $175 million through a syndicated facility arranged by Standard Chartered Bank and CTBC Bank. Fully hedged against foreign exchange and interest rate risks, the funds will be used by the company for expanding its lending portfolio.
BANK LOANS SUBSTANTIAL
Meanwhile, RBI in its briefings, had said the outstanding bank loans to NBFCs, excluding HFCs, stood at Rs15.29 trillion as of September 2024, which is an increase of Rs1.50 billion compared to July 2024.
Cube Highways Trust, a Singapore-based infrastructure investment trust, investing in infrastructure projects in India, said it has finalized a Rs6 billion bond issuance arranged by Axis Bank. The issuance saw participation from banks, insurance companies and development financial institutions.
While NBFCs borrowing from banks had generally slowed down following the RBI guidelines to banks, there were some NBFCs which availed of this facility in 2024-25. The notable entities in this category are Bajaj Finance, Shriram Finance, LIC Housing Finance, and Mahindra & Mahindra Finance. Other NBFCs, such as L&T Finance and Tata Capital, too are using bank loans as part of their funding mix.
NCD ROUTE
Meanwhile, NBFCs are also opting for issuance of non-convertible debentures, or NCDs. For example, Aditya Birla Housing Finance has raised Rs8.3 billion through NCDs from International Finance Corporation (IFC). It intends to use the funds for providing housing loans to low-income and middle-income groups. It will also use a portion of the funds to support MSMEs, especially women-led enterprises.
Meanwhile, Shriram Finance became the first Indian NBFC to raise $500 million from global investors through issuance of fixed rate, senior secured social USD notes. These notes had a coupon of 6.15%. This also was the 9th overall USD issuance. Shriram Finance had earlier raised $750 million through issuance of social bonds from global investors. The proceeds are intended to be used for onward lending to sustainable income generating segments such as vehicle finance and for employment generation through MSME financing
