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Rating agency ICRA has forecast that the number of retail bond issues in the current fiscal (FY19) may surpass their previous high of ₹42,383 crore in the financial year 2014. It said that most of the demand is expected to come from the Non-Banking Finance companies (NBFCs), which typically accounted for over 40 per cent of the retail bond issuances in the last fiscal (FY18).
According to ICRA, retail bond issues from NBFCs during the first quarter of FY19 are likely to be over ₹20,000 crore, which is much higher than the ₹4,700 crore recorded during the year-ago period.
Karthik Srinivasan, Senior Vice-President & Group Head, Financial Sector Ratings, ICRA, said: “Typically NBFCs have relied on diverse funding sources like banks, commercial papers, NCDs (retail and private placements), overseas issuances and retail fixed deposits for their funding requirements. However, tighter liquidity conditions, rising bond yields and weak capital position of public sector banks (PSBs) that enjoy a dominant 70 per cent share of bank credit is likely to increase retail bond issuances by NBFC during FY-19.”
Retail bond issues become attractive for NBFCs as overseas funding is no more a viable option due to hardening global yields and depreciating rupee and the existing challenges in the banking sector and tighter RBI guidelines on large exposure framework.
“...Historically, NBFCs have offered 25-75 bps (basis points) higher interest rates for retail category investors in their retail bond issues, thereby making the instruments attractive compared to other debt instruments like bank deposits. It may also result in better investor appetite amid limited increase in rates for bank deposits and volatile returns in debt and equity markets,” Srinivasan added.
As higher credit growth is usually witnessed during the second half of the financial year, due to relatively tighter liquidity conditions and consequently higher interest rates, historically retail debt issuances from NBFCs have been concentrated during the second half of the financial year.
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