With banks hiking interest rates, non-banking finance companies (NBFCs) are tapping non-convertible debentures (directly raising resources from public) to lock-in the rates and broad-base their source of funds.

The latest to join the bandwagon of raising resources through the NCD route is Shriram City Union Finance, which plans to raise Rs 550 crore through NCDs in August.

“The coupon rate will be decided then,” said Ms Subhasri Sriram, Executive Director, Shriram City Union.

Mr R. Sridhar, Managing Director, Shriram Transport Finance, said, “With high inflation and rising interest rates, we lend to truck owners at fixed interest and, therefore, it makes sense for us to borrow at fixed rates as well.”

The company has an NCD issue to raise Rs 1,000 crore (with an option to retain a further Rs 500 crore in case the issue is oversubscribed) at 11.6 per cent.

The issue will be open from June 27 to July 9. This is the third NCD issue from the company in two years.

Manappuram Finance, a company that lends against gold jewellery, is planning to hit the market with its maiden NCD issue of Rs 750 crore with a green-shoe option of Rs 250 crore next month.

Mr Sridhar said if a company with good track-record wants to raise large resources, say about Rs 1,000 crore, in a short span, NCD is the “way to go” as in two weeks the issue could be wrapped up.

Moot POINT

However, whether the NBFCs are going in for NCD issues because the RBI recently ruled that bank loans to NBFCs would no longer be treated as ‘priority sector' lending, is still a moot point.

The RBI's move would make bank loans slightly costlier for NBFCs and make their position weaker during negotiations with banks.

Asked if there was a connection between the RBI ruling and the recent spate of NCDs, Mr I. Unnikrishnan, Managing Director, Manappuram Finance, said, “partly”.

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