Post-IL&FS and DHFL debacles, borrowing costs have risen steeply for non-banking finance companies (NBFCs) and housing finance companies (HFC). However the rate increase have been relatively much higher for lower rated entities.
A study by Care Ratings shows the weighted average lending rate (WALR) and marginal cost of fund based lending rate (MCLR) rose by around 40 bps for AAA-rated NBFCs between April and November.
The increase in the cost of borrowing was sharper in the bond market compared with bank borrowing during this period, as the borrowing costs increased by 80 bps for NBFCs, 95 bps for HFCs, 112 bps for all-India financial institutions (AIFs).
The AAA-rated NBFCs, HFCs, AIFIs and non-NBFCs have largely been able to raise funds from the bond market at a lower cost compared with the WALR and base rate. The NBFCs in the AAA category were affected more in terms of cost of borrowings compared with non-NBFCs.
Compared with August 2018 there has been an increase for all categories of NBFCs as against increase in WALR by 17 bps (up to October) and MCLR 30 bps, the rise was 41 bps for NBFCs, 108 bps for HFCs and 112 bps for AIFIs, though the rates come down later on.
The borrowing costs faced by AA-rated NBFCs too increased during April-November, by 12 bps for NBFCs and 126 bps for HFCs. The major increase in borrowing costs for NBFCs and HFCs happened in September where the weighted average interest rates rose from 9.6 per cent in August to 10 per cent in September for NBFCs, and from 9.6 per cent to 9.8 per cent for HFCs.
The borrowing costs for AA- rated NBFCs increased the most among all the other rating categories by a whopping 252 basis points during April to October 2018. It reached over 11 per cent in September and remained in the same range for October and November. The borrowing costs for NBFCs increased to 13.35 per cent in October 2018 compared with 10 per cent in the previous months.
“To conclude it can be said that NBFCs have witnessed higher cost of borrowing in general post August 2018. However, this has not been uniform across the three categories i.e. NBFC, HFC and AIFI. ,” said Madan Sabnavis, chief economist at Care Ratings in the report.