NBFC stocks pounded as redemption pressure mounts

The rub-on effect was seen on other NBFC stocks owing to the redemption pressure from their money market instrument holders. Shares of DHFL, Indiabulls Housing, CanFin Homes, PNB Housing are down anywhere between 20-50 percent in the last three trading sessions.

For any NBFC to grow, its liability arm should always remain strong. Any adverse impact on the liability franchise can hurt the growth prospects of NBFCs especially the housing finance companies, who are the biggest borrowers in the NBFC sector.

The housing finance sector is also facing a stiff competition in the recent times in terms of product pricing from banks. In a rising interest rate scenario, housing finance companies margins do come under pressure owing to the fact that they immediately aren’t able to pass on the rise in borrowing cost to customers due to competition with banks.

Over the last 4-5 years, owing to favorable rates in the money market, the borrowing mix of NBFCs has shifted from banks to non-convertible debentures and other instruments.

As on June 2018, banks constituted just 36 percent of the borrowing mix of NBFCs compared to nearly 70 percent in June 2013.

With managements of NBFCs stating on record that they would look to use their sanction limits across banks, it looks like credit growth is going to improve from here on for the banks.

The total bank credit has grown to Rs 76,73,400 crore in July 2018 from Rs 50,88,258 crore in July 2013. The share of NBFCs in the bank credit has increased to 6.17 percent from 5.04 percent during the same period.