Retail NCD issuances soar in FY19, trend likely to continue

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As fund supply from banks and other sources dried up, non-banking finance companies (NBFCs) turned to retail investors with coupon rates as high as 13 percent in 2018-19, taking the total number of public debt issuances to a multi-year high.

There were 21 public debt issuances worth Rs 33,715 crore in 2018-19, as compared to seven issuances of Rs 4,953 crore in the previous financial year, according to data collated by CRISIL Research.

Apart from NBFCs, a few state-run companies also issued retail NCDs last year. The average yield was around 9.75-10.75 percent in 2018-19, higher than the previous year, according to CRISIL Research.

"In the second half of fiscal 2019, commercial paper (CP) issuances by non-banks were almost half of average issuances seen during the first half on account of increased risk perception of investors. Along with the player’s inability to roll over the existing CPs, there was a need to manage asset-liability mismatch. Hence, players have been looking to diversify their resource profile and reduce dependence on short term commercial papers," Rahul Prithiani, Director, CRISIL Research told Moneycontrol.

He said retail bond issuances are likely to continue in future as the response from retail investors has been good.

Data from PRIME Database showed the coupon rates on NCDs ranged between 7-13 percent in the year ended March 2019, as compared to 7-10 percent in the previous financial year, making them an attractive investment option for retail participants. The trend is likely to continue this year as well unless other cheaper avenues open up.

"Demand is high for such instruments and we may see some corporates also lining up for issuance this year," said a debt capital executive from a private advisory firm.