Norms on private placement: Small NBFCs to benefit

CHENNAI: The new RBI guidelines on private placement of NCDs (non-convertible debentures) by NBFC (non-banking finance companies) having a maturity over 12 months is set to benefit smaller players in the sector.
The guidelines by the central bank state that the minimum subscription per investor shall be Rs 20,000 and that there shall be a limit of 200 subscribers for every financial year, for issuance of NCDs with a maximum subscription of less than Rs one crore.
"Smaller investors who have an investible surplus of Rs 20,000 can now invest in such instruments. Till now, our average subscription in any NCD issuance ranged from Rs one lakh to Rs two lakh," Thomas George Muthoot director of Muthoot Fincorp (part of the Muthoot Pappachan group) said. The company raised close to Rs 700 crore through NCDs last year.
And as per industry estimates, Indian corporates have raised over Rs 8,000 crore in the current fiscal by way of NCDs to meet their working capital requirements.
For small NBFC players, the clarity in guidelines could also help diversify their loan book. For instance, NBFC-MFIs (micro finance institutions) have primarily relied on term loans from banks, commercial paper and other securitized asset transactions as primary fund sources. "Asset securitization normally happens at the end of the fiscal when banks have to fulfill their priority sector lending targets. Instruments like commercial paper are 150 to 200 bps lower when compared to term loans from banks," said a senior official from SKS Microfinance who did not wish to be identified.
Officials have also welcomed the RBI move of bracketing issuance of private placement of NCDs in two categories, those with a maximum subscription of less than Rs one crore and those with a minimum subscription of Rs one crore and above per investor. "This will lead to clarity on private placement of NCDs by retail and institutional investors," group chief financial officer of Equitas S Bhaskar said.