Borrowing Costs Surge for NBFCs and Companies in India

Key Takeaways:

1. Increase in borrowing costs for companies, banks, and NBFCs through commercial papers (CP) and certificates of deposits (CD) by 15-25 basis points (bps) over the past month.

2. Non-banking financial companies (NBFCs) have experienced a sharper rise in borrowing costs compared to other companies, with a 25 bps increase in interest rates on CPs over the past month.

3. New regulatory measures announced by the Reserve Bank of India (RBI) on November 16 have impacted the credit market and liquidity conditions, leading to the surge in borrowing costs.

4. Rates for bank funding through certificates of deposits (CDs) have also increased by 20-25 basis points due to persistent tight liquidity conditions in the banking system.

5. Despite the hardening of rates, domestic markets are relatively cheaper compared to the cost of overseas borrowing in the current conditions, potentially leading to a shift to local markets for borrowing.

The recent increase in borrowing costs for companies, banks, and non-banking financial companies (NBFCs) in India. The rise in borrowing costs is particularly notable in the commercial papers (CP) and certificates of deposits (CD) markets, with an increase of 15-25 basis points (bps) over the past month. This increase in borrowing costs is attributed to the new regulatory measures announced by the Reserve Bank of India (RBI) on November 16, which have impacted the credit market and liquidity conditions.

Here are the key points highlighted in the article:

1. Increase in Borrowing Costs: The cost of borrowing for companies, banks, and non-banks through commercial papers (CP) and certificates of deposits (CD) has risen by 15-25 basis points (bps) over the past month. This increase is particularly evident in the crowded three-month segment of borrowing.

2. Impact on NBFCs: Non-banking financial companies (NBFCs) have experienced a sharper rise in borrowing costs compared to other companies. The interest rates on CPs issued by NBFCs have risen by 25 bps over the past month, while manufacturing companies have seen a 15 bps increase.

3. Regulatory Measures by RBI: The increase in borrowing costs is attributed to the new regulatory measures announced by the RBI on November 16. These measures include increases in bank capital requirements for consumer loans, setting limits on various retail segment loans, and an increase in risk weights on loans given by banks to NBFCs.

4. Impact on Bank Funding: Rates for bank funding through CDs have also increased by 20-25 basis points due to persistent tight liquidity conditions in the banking system.

5. Comparison with Global Rates: Despite the hardening of rates, it is noted that domestic markets are still relatively cheaper compared to the cost of overseas borrowing in the current conditions. This may lead to a shift to local markets for borrowing.

6. Examples of Borrowing Rates: The article provides examples of specific companies and institutions, such as Bajaj Finance, Adani Enterprises, Axis Securities, National Bank for Agricultural and Rural Development (Nabard), and Small Industries Development Bank of India (Sidbi), to illustrate the increase in borrowing costs in the primary market for commercial papers and certificates of deposits.

The increase in borrowing costs for companies, banks, and NBFCs is a significant development that can impact the overall credit market and liquidity conditions in India.

FAQ

Q1: What is the primary reason for the increase in borrowing costs for companies, banks, and NBFCs in India?

A1: The increase in borrowing costs is primarily attributed to new regulatory measures announced by the Reserve Bank of India (RBI) on November 16, impacting the credit market and liquidity conditions.

Q2: Which sector has experienced a sharper rise in borrowing costs?

A2: Non-banking financial companies (NBFCs) have experienced a sharper rise in borrowing costs compared to other companies, with a 25 bps increase in interest rates on commercial papers (CPs) over the past month.

Q3: How has the increase in borrowing costs affected bank funding?

A3: Rates for bank funding through certificates of deposits (CDs) have also increased by 20-25 basis points due to persistent tight liquidity conditions in the banking system.