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Banks and NBFC are seeking to diversify funding sources

ICICIdirect Research 06 Sep 2024 DISCLAIMER

While NBFCs, with good credit rating, are tapping overseas market for borrowing, banks are looking to raise Tier II and infrastructure bonds.

Among private players, Axis Bank raised ₹ 3,925 crore, through sale of 10-year infrastructure bonds at 7.45% coupons. PSU banks are seeking to follow suit with Bank of Baroda planning to raise ₹ 5000 crore, through infrastructure bonds (which is second tranche to be raised in current fiscal). Canara Bank has mobilised $300 million via the IFSC Banking Unit through issue of notes with 5 years maturity and coupon of 4.896% paid semi-annually.

NBFCs, amid increase in funding cost and moderation in bank funding, are seeking to diversify borrowing mix through public deposits and overseas funding. Shriram Finance is seeking to raise $300 million through dollar denominated bonds which is a part of strategy to raise $1.25-1.5 billion from overseas markets.

While deposit mobilization challenge seems to be transient rather than structural, lenders are currently scouting for diversification in funding mix amid continued competition in deposit accretion. Thus, cost of borrowing is expected to remain elevated and keep margins under pressure in near term. In the event of anticipated decline in interest rate, yields could witness a faster decline (owing to externally linked loans), however, cost of deposits could continue to remain elevated, thus posing pressure on margins.

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