Retail-focused NBFCs may need up to Rs 4 trillion fresh debt to grow at 20% in FY19: Report

Retail-focused non-banking financial companies (NBFCs) would require Rs 3.8-4 trillion of fresh debt capital in FY19 to grow at 20 per cent in the current financial year, says a report. Domestic NBFCs are facing twin challenges in the form of narrowing options and increased borrowing cost for adequate debt raising. “Retail-focused NBFCs would require about Rs 3.8-4 trillion of fresh debt funding during FY19 to support their envisaged portfolio growth of about 20 per cent during the year,” according to a report by Icra. It said the incremental weighted average funding cost for NBFCs is also expected to be about 9.3-9.5 per cent vis-a-vis 8.4-8.5 per cent in FY18.

“Based on the asset liability mismatch (ALM) analysis of large retail-NBFCs, we note that the pricing related pressure is expected to be higher in the second half of FY19, as debt redemptions are expected to happen at a faster pace than their advance maturities and as incremental growth is expected to be more robust in the second half,” the rating agency’s assistant vice president and sector head (financial sector ratings), A M Karthik, said.

Banks witnessed a sharp increase (27 per cent growth) in their credit exposures to NBFCs during FY18, while the banking system credit growth remained muted at 8 per cent for the period. Consequently, share of NBFC credit increased to 10.5 per cent of the banking system credit to corporates in March 2018 as compared with 8.7 per cent in March 2017.

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However, going forward, banks are likely to be constrained by their internal sectoral lending caps, on taking incremental exposure to NBFCs. As for mutual fund exposure to NBFCs, it also increased sharply between September 2017 and March 2018 as it more than doubled during this period, the report said.

The recent developments in the foreign portfolio investors (FPI)- debt space too is partly negative and could impact private placement funding to NBFC via this route. Depreciation in the rupee and hardening global yields are likely to further have an adverse effect on the overseas investor appetite, it added.