By Vinayak Aggarwal
Commercial paper (CP) issuances by non-banking financial companies (NBFCs) dropped over 66% year-on-year (y-o-y) in August 2019, led by a rise in cost of funds and correction of asset-liability mismatch by non-banks.
The data collected by Prime Database showed CP issuances dropped down almost 45% in January to August period of 2019 as compared to the last year. Last year in August, NBFCs rose Rs 95,694 crore by issuing CPs, while NBFCs issued just Rs 32,355 crore in August 2019.
Kiran Joshi, head treasury at Tata Capital, said, "CPs had given cost advantage compared to other forms of borrowing. Hence CP issuances were in vogue till September, 2018. Post that NBFCs have been correcting the asset-liability mismatches by paring dependence on short term borrowings. Mutual funds, which were significant investors in CPs, have also trimmed their exposures."
Commercial paper was a source of cheaper money for NBFCs but the cost of funds have been rising now as the investors are dubious in putting their money and demand of funds is high due to liquidity crunch in the entire sector.
Dwijendra Srivastava, chief investment officer – Debt, Sundaram Mutual Fund, said: "Earlier NBFCs used to borrow short-term money and lend it for long tenures which caused asset-liability mismatch. To correct the mismatch, NBFCs are now looking for longer tenures. Also, because of some downgrades NBFCs are not able to get funds as the investors have become more risk averse while investing. Only some high rated corporates and NBFCs are getting money."
The NBFC sector is now largely dependent on the banking sector to get funds as the government has announced measures like on-lending and co-lending to beat the liquidity crisis in the non-banks.