NBFCs turn to retail deposits to raise capital

Tags: News

Good option for investors as schemes offer up to 10%

Retail depositors have attractive options to lock in cash at high interest rates as expensive bank credit is forcing many non-banking finance companies (NBFCs) and manufacturing firms to go for retail deposit schemes to raise funds.

The Reserve Bank of India made it expensive for banks to raise money from the central bank after it reduced the overnight borrowing limit and raised the longer-term borrowing (term repos) limits in the money policy unveiled on April 1. Term repos are more expensive than ove­rnight borrowing.

Mahindra Finance, HDFC and Dewan Housing have already launched retail deposit schemes to mobilise funds. Several companies in the manufacturing sector are also mulling similar options.

HDFC, India's largest housing finance company, has retail deposit schemes with tenures ranging from one to 10 years. The NBFC offers 9.60 per cent interest rate on deposits up to 15 months. The mortgage lender depends on bank finance, bonds and retail deposits to grow its balance sheet. About one-third of HDFC's funding requirements are met through retail deposits.

The Companies Act 2013 will further raise funding costs of NBFCs, as they will be required to maintain liquid assets to the extent of 15 per cent of the debentures maturing during a financial year.

"We have a retail deposit scheme for three years offering an interest rate of 10.25 per cent. We raise about Rs 1,500 crore ann­ually through deposit sch­emes to meet operational needs of the company," said V Ravi, chief financial officer of Mahindra Finance, a deposit-taking NBFC.

It serves three million customers through more than 700 branches, many of which are in rural and semi-urban areas.

Dewan Housing is raising retail deposits under a 14-month scheme, offering 10.75 per cent interest rate.

RBI has tightened the norms for NBFCs. Last year the central bank said NBFCs raising money through private placement of debt should not have more than 49 investors and the minimum subscription of a single investor should be Rs 25 lakh. It also said there should be a minimum gap of six months between two private placements and NBFCs cannot extend loans against the security of its own debentures.

RBI issued the guidelines after it was noticed that NBFCs were raising resources from retail depositors on a large-scale through private placement, especially by issue of debentures.

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