17 September 2024
Three of India's top non-banking finance companies (NBFCs), including Bajaj Finance, have collectively raised $1.3 billion through overseas bank loans. This move comes as they seek to diversify their funding following stricter regulations by the Reserve Bank of India (RBI).
Last week, Bajaj Finance and Cholamanclalam Investment and Finance Co raised $700 million and $300 million, respectively. Additionally, HDFC Bank's subsidiary, HDB Financial Services, is finalizing formalities for a $300 million, three-year loan that is expected to close this week.
All three companies, being among India's most valued NBFCs with high domestic credit ratings, secured loans at similar levels. The loans, obtained under the external commercial borrowing (ECB) route, are foreign currency borrowings. Cholamandalam is priced at 6.71 times its book value, Bajaj Finance at 5.95 times, and HDB at 7.23 times, according to their share prices in the unlisted market.
The loans for all three companies have been priced at 135 basis points over the three-month Secured Overnight Financing Rate (SOFR), which is currently quoting at 5.33%. Bajaj Finance's loan was jointly provided by Japan's Mitsubishi UFJ Financial Group (MUFG), State Bank of India, and World Bank arm International Finance Corp (IFC).
Cholamandalam also raised $300 million from MUFG, while HDB Financial is in the process of finalizing a similar loan. Foreign borrowings provide NBFCs with a good option to diversify funding sources while paying rates that are not significantly higher than domestic rates. This is especially important as banks' benchmark rates have remained high, and their balance sheets have grown.
Furthermore, NBFCs prefer longer-term funding over short-term commercial papers or debentures, and overseas loans provide them with this flexibility. Banks have also been cautious about lending to NBFCs domestically, as the RBI has raised concerns about rising bank exposure to the sector and discouraged certain loans by increasing risk weights for unsecured loans.
The interconnectedness of NBFCs and banks has been a point of concern, with the RBI expressing worries about potential financial stability issues due to the significant role played by NBFCs in credit intermediation and their close ties with banks.
Three of India's top non-banking finance companies (NBFCs), including Bajaj Finance, have collectively raised $1.3 billion through overseas bank loans. This move comes as they seek to diversify their funding following stricter regulations by the Reserve Bank of India (RBI).
Last week, Bajaj Finance and Cholamanclalam Investment and Finance Co raised $700 million and $300 million, respectively. Additionally, HDFC Bank's subsidiary, HDB Financial Services, is finalizing formalities for a $300 million, three-year loan that is expected to close this week.
All three companies, being among India's most valued NBFCs with high domestic credit ratings, secured loans at similar levels. The loans, obtained under the external commercial borrowing (ECB) route, are foreign currency borrowings. Cholamandalam is priced at 6.71 times its book value, Bajaj Finance at 5.95 times, and HDB at 7.23 times, according to their share prices in the unlisted market.
The loans for all three companies have been priced at 135 basis points over the three-month Secured Overnight Financing Rate (SOFR), which is currently quoting at 5.33%. Bajaj Finance's loan was jointly provided by Japan's Mitsubishi UFJ Financial Group (MUFG), State Bank of India, and World Bank arm International Finance Corp (IFC).
Cholamandalam also raised $300 million from MUFG, while HDB Financial is in the process of finalizing a similar loan. Foreign borrowings provide NBFCs with a good option to diversify funding sources while paying rates that are not significantly higher than domestic rates. This is especially important as banks' benchmark rates have remained high, and their balance sheets have grown.
Furthermore, NBFCs prefer longer-term funding over short-term commercial papers or debentures, and overseas loans provide them with this flexibility. Banks have also been cautious about lending to NBFCs domestically, as the RBI has raised concerns about rising bank exposure to the sector and discouraged certain loans by increasing risk weights for unsecured loans.
The interconnectedness of NBFCs and banks has been a point of concern, with the RBI expressing worries about potential financial stability issues due to the significant role played by NBFCs in credit intermediation and their close ties with banks.
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