NON-BANKING financial companies are likely to witness close to Rs 18 lakh crore of their outstanding debt getting repriced at higher levels in FY23 amid the rising interest rate scenario, Crisil Ratings said in a report on Tuesday.
The agency expects borrowing cost of NBFCs (Non-Banking Financial Companies) to go up by 85-105 basis points (bps) in this fiscal owing to recent hikes in repo rate by 90 basis points in two tranches and an expected rise of
another 75 bps in the remaining fiscal.
The agency said an analysis of its rated NBFCs shows, “Rs 15 lakh crore of debt, or around 65 per cent of outstanding debt as on March 31, 2022, is due for repricing this fiscal owing to interest reset or maturity. Another Rs 3 lakh crore of incremental debt is likely to be raised to support expected growth in lending.”
Banks remain a major funding resource for non-banking financial companies. The share of banks in NBFCs’ total borrowings has increased to 34 per cent in March 2022 from 27 per cent in March 2018.
The agency said the impact of rate hikes will vary based on the mix of fixed and floating rate borrowings in NBFC
Earlier, transmission of such rate changes made by the RBI used to happen with a lag. However, with banks’ floating loans now benchmarked to external gauges such as the repo since October 2019, the pass-through is relatively quicker compared with loans linked to the Marginal Cost of funds-based Lending Rate (MCLR).
“Our study shows increases or decreases in MCLR over the past five fiscals have not kept pace with the changes in the repo rate. At the same time, interest rates on repo-linked bank facilities do reflect such changes very quickly,” the agency’s Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said.