NBFCs may tap Indian bond mart

Mumbai: Retail bond issuance could hit a record high in FY19 led by NBFCs as hardening bond yields and depreciating rupee are likely to force them to tap the domestic market.

According to Icra, overseas funding despite RBI’s relaxed norms is not a viable option due to hardening global yields and depreciating rupee leading to higher hedging premiums.

“In case of rupee denominated overseas borrowings, investors may want higher returns to offset the currency risks. Therefore, in such a scenario, to support their credit growth, NBFCs may have to meet part of their funding requirements through retail bond issuances during the year,” the rating agency said.

The highest amount ever raised through the issuance of retail bond was in FY14 totalling Rs 42,383 crore.  

The NBFCs have accounted for 40 per cent of the retail bond issuances during FY11 – FY18 period, the balance being accounted by tax-free bonds.  The trend is clearly visible as retail bond issuances from NBFCs during Q1FY19 itself are likely to surpass '20,000 crore, much higher than '4,700 crore during FY18.

With the hardening bond yields from Q3FY18 the credit demand from NBFCs shifted to banking channel, which is reflected in growth of bank credit outstanding towards NBFCs to Rs 4.96 lakh crore as on March 30, 2018 as against '3.68 lakh crore as on December 22, 2017.

However, Icra believes that this trend is unlikely to sustain given the numerous challenge PSB’s are currently grappling with and tighter RBI guidelines on large exposure framework.

NBFCs have typically relied on diverse funding sources for their funding requirements.

“However tighter liquidity conditions, rising bond yields and weak capital position of public sector banks that enjoy a dominant 70 per cent share of bank credit is likely to increase retail bond issuances by NBFC during FY19,” said Karthik Srinivasan, senior VP & group head, financial sector ratings, Icra.