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Mumbai, Nov. 13 With the mutual fund industry reeling under pressures of redemption, the non-banking finance companies (NBFC) would part-replace the borrowings from the fund houses with banking lines over the short to medium term, said rating agency ICRA.

According to ICRA, NBFCs rely to a large extent on mutual funds to meet their funding requirements (approximately 50 per cent as on March 31, 2008). The switch to banking lines, however, would come at a substantially higher cost.

Most of the NBFCs are looking at scaling down their disbursements either because of the tight liquidity situation or credit concerns. “Given that NBFCs play an important role in financial inclusion, the current environment may well lead to a setback on this front as well,” said Ms Vibha Batra, Co-Head, Financial Sector Ratings, ICRA Ltd.

Those NBFCs with asset-liability mismatches and with a large portion of their loan books consisting of unsecured loans are likely to find it more difficult to raise resources. “This was evident this September and October when some NBFCs were forced to borrow at exceptionally high rates,” said Mr Karthik Srinivasan, Co- Head, Financial Sector Ratings, ICRA Ltd.

More Stories on : NBFCs | Mutual Funds

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