ICICI Bank may raise Rs 25,000 crore to lend amid NBFC liquidity crunch

Editor's Take | Easing the liquidity squeeze in NBFCs

NBFCs have been facing a liquidity crisis, following a series of defaults by Infrastructure Leasing & Financial Services (IL&FS) and selling of Dewan Housing Finance Corporation (DHFL) commercial papers worth around Rs 300 crore by DSP Mutual Fund at higher yields in September.

Industry experts told the paper that ICICI Bank's move is well thought-out.

"This appears to be a sensible move by ICICI Bank to secure shareholder approval for this enabling resolution to raise capital. In an environment where NBFCs are facing liquidity issues and deployment opportunities are beginning to emerge, there is an opportunity for well-capitalised banks to raise debt at attractive rates and deploy it comfortably in retail as well as wholesale projects," Krishnan ASV, lead Analyst for banking and financial services at SBICAP Securities, told the paper.

With NBFCs slowing their pace of disbursements, banks also benefit from a conducive pricing environment with asset yields likely to reflect a gradual return of banks’ pricing power, Krishnan added.

NBFC liquidity crisis: Banks see room for growth

In September, UBS Securities predicted that tighter liquidity conditions could translate in lower growth and margins for NBFCs going forward. Lenders, however, seem to have found an opportunity to lend to NBFCs. "Private banks like ICICI Bank and HDFC Bank would be key beneficiaries due to the shift in borrowing profile for NBFCs," Jignesh Shial, Kushan Parikh and Himanshu Taluja of Emkay Global said in a September report.

Usually, NBFCs raise funds either from banks or mutual funds with banks financing up to 60 percent and about 30-35 percent accruing from fixed income mutual funds.

Over the last one-and-a-half year, banks tightened their lending to NBFCs on the back of rising non-performing assets (NPAs). As a result, NBFCs started to approach mutual funds for their funding requirements.

Read: Housing finance cos may have to provide liquidity reports, payment commitments to NHB

Rating agencies and research analysts have been painting a bleak outlook for the Rs 28.4 lakh crore NBFC and home financing space, which led to a sharp decline in NBFC stocks.

NBFCs are also facing refinancing risks with their commercial papers (CPs). Papers worth about Rs 78,380 crore of various debt mutual fund schemes are pending redemption between October and March, the report said.

In June, rating agency ICRA estimated that retail-focused NBFCs, which has an estimated portfolio size of Rs 7.5 lakh crore, would need Rs 3.8-4 lakh crore of fresh debt funding in FY19 to support their envisaged portfolio growth of about 20 percent this fiscal.

"About 50 percent NCDs and CPs of NBFC borrowings were largely at a fixed rate, while 35-37 percent of bank borrowings get repriced on a quarterly or annual basis. As the share of bank borrowings begins to increase from Q2 FY18 and borrowings with annual reset dates expected to get repriced from August-September, retail NBFCs are expected to face increased pricing pressure in H2 FY19," ICRA said.