MUMBAI: Bond sales by non-bank lenders have nearly doubled in the first quarter of FY21, indicating evident revival of investor confidence in suppliers of crucial credit to last-mile users despite the protracted lockdown.

These financiers together raised Rs 89,433 crore, compared with Rs 49,625 crore garnered last year in the June quarter, data compiled by JM Financial showed. The tally may rise further as the quarter is yet to end. Double-A rated companies, considered less resilient than those with a higher rating, raised Rs 8,508 crore – more than four times of FY20.

“The dynamics of NBFC investment have changed,” said Rajeev Radhakrishnan, Head- Fixed Income, SBI Mutual Fund. “Although there would be some asset quality pressure, the risk appetite has improved due to easier liquidity. We are now watching the impact of the overall economic conditions on last-mile lenders.”

Sundaram Finance, HDB Financial, L&T Finance, HDFC Ltd, Aditya Birla Finance, ECL Finance, JM Financial, Indostar Cap, IIFL Finance, Shriram Transport Finance, and Magma Finance are some of the issuers raising funds during the current quarter.

Funding costs too have fallen, although not in line with policy rates. For example, double-A rated series of papers offered 8.25% on an average this quarter with less than five-year maturities, about 105 basis points lower than the levels seen in the corresponding period last year.

A basis point is 0.01 percentage point.

Since April last year, the Reserve Bank of India (RBI) slashed the benchmark repo rate by 225 basis points until now.

“The element of fear psychosis is fast receding with investors regaining confidence with NBFCs,” said Ajay Manglunia, managing director and head of fixed income at JM Financial. “While banks have bought most of the NBFC papers via the dedicated RBI window, the secondary market trades are also seen improving, with no persisting negative sentiment. Funding costs may come down further as overall raising of capital has cut excess leverage.”

Similarly, for triple-A rated shadow banks, the average bond coupons dropped 126 basis points with maturities less than five years.

The introduction of the Targeted Long Term Repo Operation (TLTRO) along with Partial Credit Guarantee Scheme (PCGS) has also resulted in more money available for cash-starved NBFCs.

“The second version of TLTRO triggered this surge in bond sales from smaller NBFCs,” said Sandeep Bagla, associate director at Trust Capital. “Such capital raising has at least taken care of the liability side of NBFCs for the time being. The flow of funds to double-A rated papers has mitigated initial investor concerns.”

Companies rated between AA+ and AA- were mostly conspicuous by their absence in the first quarter of the last financial year.

“This risk-aversion has eased significantly due to a series of positive measures initiated by the government and RBI,” said Nirakar Pradhan, Asia Pacific Representative at Professional Risk Managers’ International Association. “Investors are fast shrugging off worries that overwhelmed them after the collapse of top-rated companies, including IL&FS and DHFL.”



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