How India’s Largest NBFCs Fared In The Crisis Hit December Quarter
The fall of the once AAA-rated Infrastructure Leasing and Financial Services Ltd. in September 2018 led to a drying up of liquidity, particularly for the country’s non-bank lenders. The liquidity crunch was at a peak in October and eased only slowly by December, leaving non banking financial companies will little choice but to conserve funds and slow down lending.
Data reported by these firms as part of third quarter earnings shows either a decline in the loan growth or, in some case, an actual drop in lending. The performance differs widely based on individual groups and ability to raise funds from the bond market at a reasonable cost.
BloombergQuint compiled data on credit supply from the top ten NBFCs and housing finance companies. Some of these firms reported data of actual disbursements for the quarter while others reported their outstanding loan books, which would also include the impact on any loan portfolio sales.
Of the five companies that showed loan book growth, two — Shriram Transport Finance Co. Ltd. and Indiabulls Housing Finance Co. Ltd — saw a sequential decline in their respective loan books.
Indiabulls Housing saw a 17 percent decline in its loan book outstanding, while Shriram Transport Finance Co. Ltd saw a 3.7 percent decline. Bajaj Finance Ltd, Mahindra and Mahindra Financial Services Ltd and Housing Development Finance Corporation Ltd continued to lend at a decent pace.
On a cumulative basis, these five firms companies saw growth in loan book fall to 2.67 percent in the first nine months of FY19 compared to a growth of 6.2 percent in the same period last year.
Five NBFCs gave details of disbursements during the quarter, which gives a clearer picture of credit flow.
Three of these firms reported a decline in disbursements. The sharpest fall was seen in the case of Dewan Housing Finance Corporation, which saw a 96 percent drop in disbursements. PNB Housing Finance Company ltd and Cholamandalam Investment and Finance Company Ltd continued to lend at the same rate as they did in previous quarters.
The average growth of loan disbursements by the five NBFC/HFCs turned negative in the first nine months of FY19 compared to 11 percent growth in the same period last year.
To be sure, while the credit markets had seen considerable stress in October and early November, conditions eased towards the end of the quarter. This could mean that the pace of lending will pick up in the January-March period.
Most NBFCs only resumed their disbursement in the second half of December after the Reserve Bank of India announced open-market-operations and yields started softening. During the quarter a lot of NBFCs and HFCs curtailed their lending or disbursements in October and November and built up more liquidity on their balance sheet, as they were not sure about future funding.Karthik Srinivasan, Senior Vice President, ICRA Ltd.
Constrained Funding Environment
Following the collapse of IL&FS, the short term funding market via commercial paper dried up, particularly for NBFCs. These firms, however, continued to raise money via bonds. Borrowing costs also rose.
The volume of commercial paper issuances came down to Rs 6.1 lakh crore in Q3 FY19 from Rs 7.95 lakh crore in Q2 FY19, shows RBI data.
According to Kavita Chako, senior economist at Care Ratings, the share of NBFCs and HFCs in fund raising from the markets fell in the third quarter as investors turned risk-averse.
NBFCs used to constitute over 30 percent of all CP issuances, but this dropped to 11 percent in October. It has rebounded to over 25 percent in the month of December. Similarly, the share of CPs raised by HFCs used to average between 10-15 percent but this dropped from 21 per cent in September to 10 percent in October and 5 percent in the month of December.Kavita Chako, Senior Economist, Care Ratings
Further, NBFCs and HFCs raised a total of Rs Rs 1.27 lakh crore from the corporate bond market in Q3FY19 as compared to Rs 71,837 crore during Q2 FY19, according to ICRA ltd. HDFC and LIC Housing raised the most funds from the bond markets during the October to December period of last year
Mending the Asset-Liability Mismatch
The focus for these financiers over the past four months turned towards improving their liquidity position rather than growing their loan books. In particular, lenders pushed securitisation as a way of unlocking liquidity.
“Funds raised by NBFCs and HFCs through the securitisation route helped meet sizeable repayment obligations of the sector in an otherwise difficult market,” said Vibhor Mittal, Group Head of Structured Finance Ratings at rating agency ICRA.
Securitisation volumes were boosted further by RBI’s relaxation of the minimum holding period criteria for long-tenure loans, which increased the quantum of assets eligible for securitisation in the system, Mittal added.
Together, NBFC and HFCs have raised a total Rs 73,000 crore between April and December 2018 through the sell-down of their retail and small-medium-enterprise portfolios, said a report by ICRA Research and Ratings Ltd.
Mittal added that securitisation will be an important funding tool for retail focused NBFCs going forward, as it allows companies to raise funds at an attractive cost while mending their ALM position.