The share of the financial sector, primarily banks and non-banking finance companies (NBFCs), in total fund raising though private placement of bonds has come down in the current financial year.
It is expected to come down further in the next one, 2013-14, in a scenario where banks might no longer raise Tier-II bonds and NBFCs are not expecting significant pick-up in their business. In April-September, financial sector entities contributed 73.1 per cent in the total amount mobilised through private placement of bonds, compared with 90.3 per cent in FY12 and 78.3 per cent in FY11, shows data collected by Prime Database.
This year, the requirement to borrow by way of bonds was not high because credit growth was subdued. Banks were also not borrowing because these bonds cannot form a part of capital adequacy under Basel-III norms,” said N Seshadri, executive director, Bank of India.
Basel-III implementation will begin from April 1, under which equity capital and retained earnings are the predominant form of Tier-I capital. “Now, Tier-II is not relevant, so (in the) next fiscal, banks may not go for it,” said J Moses Harding, head of economic and market research, IndusInd Bank. As Tier-II will not be counted, raising deposits will be a better way to go forward, he said. NBFCs went slower with private placement of bond issuances because their credit growth was also slower compared with last year.
“Credit growth is not really robust. It has been in the range of 15-16 per cent compared with 20 per cent a year ago. When there no credit growth, we don’t raise much money,” said a top official of a leading NBFC.
According to the official, it will be a similar situation in the next financial year because the capital expenditure cycle is slowing and the outlook is not very bright. “Credit growth may fall further,” the official said.
The other reason for slower issuances by NBFCs was deferral of rate cuts by the Reserve Bank of India.
“RBI had cut the interest rate in April by 50 basis points and these NBFCs deferred plans to raise through private placement, hoping for a further rate cut in the first half,” said an analyst with a rating agency. Most of the government-owned NBFCs were among the top 10 issuers.