Auto major Mahindra & Mahindra (M&M) on Monday said it would raise R475 crore via issuance of rated, listed, unsecured and redeemable non-convertible debentures (NCDs) at a coupon of 7.57%.
The issue has been rated ‘CRISIL AAA/Stable’, the company had earlier said in a regulatory filing. An
FIMMDA benchmark for ‘AAA’ corporate bonds is currently at 7.67%, while the lowest one year marginal cost of funds-based lending rate (MCLR) is 9.1%.
M&M’s issue marks a shift of sorts since most NCD issuances in the last few months were by non-banking finance companies (NBFCs), last month’s issuance by Ultratech Cement at a coupon of 7.53% being an exception.
M&M’s issue notwithstanding, analysts believe till capacity utlilisation of the industry picks up in a substantial manner, NBFCs will dominate the NCD and commercial paper (CP) markets with banks not having much choice but to subscribe to them.
An analysis of data released by the Reserve Bank of India (RBI) and Prime Database suggests that not only are NBFCs literally forcing banks to invest in their CPs and NCDs, but are also issuing them at record amounts.
While July was the fourth successive month when banks’ lending to the industry grew at less than 1% (Y-o-Y), the month saw the growth rate in their lending to NBFCs hitting a two-year high of over 15.5% (Y-o-Y).
According to RBI data, banks’ investments in bonds and debentures issued by the private sector hit an all-time high of over Rs 1.42 lakh crore in the fortnight ended September 16.
Bankers admit that NBFCs are forcing them to subscribe to their debt in return of borrowing from them. “Most of our large disbursals in the previous two quarters were to NBFCs, primarily retail-focussed ones. Given the lower rates and the buoancy in the debt market, we can’t say ‘no’ to them if they ask us to subscribe to their NCDs/CPs. In any case, they provide better yields than statutory liquidity ratio (SLR) securities,” a senior executive at a public sector bank said.
Last month, FE had reported how NBFCs are also forcing banks to lend to them at the rate prevalent on the day of disbursal, instead of the rate on the day of approval, in case a bank’s MCLR drops between the two dates.
One of the primary reasons for bank credit to the industry slowing down while the CP and NCD markets have grown by leaps and bounds is that the latter has seen much faster transmission of rates.
While the RBI has cut the benchmark repo rate by 150 bps to 6.5% since the beginning of CY15, the FIMMDA benchmark for ‘AAA’ bonds has dropped by almost 100 bps, according to data sourced from Bloomberg. State Bank of India’s base rate during the same period, on the other hand, has dropped by just 70 bps to 9.3%, while its one-year MCLR is currently at 9.1%.
