NBFCs tap retail investors as banks cut FD rates

MUMBAI: Growing maturity among retail investors to take risks in fixed income products and the opportunity to earn higher interest income at a time when banks are cutting FD rates have prompted five finance companies to look at raising nearly Rs 2,150 crore through public offers for non-convertible debentures (NCDs) this month.

The move is also spurred in part by the need for the firms to diversify their fund-raising routes. Compared to this, funds raised through public offers for shares — that is IPOs or FPOs — totalled less than Rs 100 crore so far this month, according to market data.

India Infoline Finance was first off the block, opening on September 5 and closing on the third day with a subscription of about Rs 590 crore, of which it retained Rs 500 crore and returned the rest.

Since then, four more NCD offers — one each from Shriram City Union Finance, Muthoot Finance, Religare Finvest and Srei Infrastructure Finance — have hit the market , aiming to mobilize Rs 1,650 crore.

“There are two reasons why NBFCs (non-banking finance companies) are raising money through NCDs,” said R Venkataraman, director , India Infoline Finance, which had closed its issue a day prior to its scheduled close because of excessive demand for its paper.

“One is we need to diversify our sources of funds. And secondly, since investors are maturing, NBFCs are tapping retail investors for funds through this product (NCDs).”

For retail investors, the high rates of interest — at a time when banks are cutting their fixed deposit rates — is one of the main reasons for the popularity of NCDs, market players said.

Compared to rates of 9-10 % per annum that investors got from banks, India Infoline Finance offered as much as 13.52% in one of its options. In one of Religare Finvest’s options, the yield works out to 12.62%, its information sheet on the NSE website showed.

“Investors have the option to earn higher rates and lock in their funds at those rates for three-five years,” said Kavi Arora, MD & CEO, Religare Finvest. Its NCD offer , currently open, is scheduled to close in a week’s time.

“But investors should also look at the safety aspect in these issues,” Arora cautioned . Among the NCD offers currently open, Religare Finvest has AA- rating from ICRA, Srei Infra has AA from CARE, while Shriram City Union and Muthoot Finance both have AA- /Stable ratings from Crisil.
Diversity in receipts from these NCDs is another option that is attracting investors of various kinds. For example, investors in Shriram City Union can choose an annual receipt option or a payment on maturity after five years, while Religare Finvest investors have the option to receive interest payment annually , or in lump sum after three years or six years.