/Group of non-bank lenders to issue pooled debt instruments

Group of non-bank lenders to issue pooled debt instruments

Kolkata: A group of non-bank lenders, including microfinance firms, is likely to issue pooled debt instruments such as bonds together to gain bargaining power on price as they are looking to tap the separate liquidity window offered by Reserve Bank of India under the targeted long-term repo operation (TLTRO 2.0).

The Microfinance Institutions Network (MFIN), the self-regulator for NBFC-MFIs, has approached fund arrangers such as Northern Arc Capital and Vivriti Capital for such blended pooled issuances, two people familiar with the development said.

This will also help firms below investment grade access the liquidity tap since such joint effort would typically enhance their credit rating. This brings down issuance cost too.

RBI has planned Rs 50000 crore liquidity infusion through TLTRO 2.0 with a direction to banks to invest at least half of it into “investment-grade” commercial papers or bonds issued by smaller non-bank lenders including microfinance firms.

About one-fourth of the rated non-bank lenders are below investment grade and therefore they are barred them from accessing the liquidity window individually. Rating company ICRA said that out of 450 rated non-bank lenders, as many as 40 are below investment grade while data from MFIN showed that 25% of their members fall in this category.

“We are in discussions and working on a structure,” said Northern Arc chief executive Kshama Fernandes. “We will include all firms – small and mid-sized, including unrated and non-investment grade. This is what we had done during the liquidity crisis in 2018.”

The smaller ones are more vulnerable and are prone to default in the absence of institutional support. They are facing liquidity squeeze as the repayment collection stopped following lockdown.

This situation is acute for microfinance firms who rely on door-to-door customer service. They have provided moratorium to their borrowers while the banking sector is split on offering back-to-back moratorium to them. A couple of small firms have already defaulted their payments to banks, according to MFIN.

“Foreign banks and a few public sector banks have started offering moratorium since last week,” a chief executive of a prominent NBFC-MFI said. Development financial institutions like Small Industries Development Bank of India refused moratorium on payment from MFIs.

The pool bond issuance allowed investors gain a diversified exposure to NBFCs and NBFC-MFIs serving several financial inclusion needs in India, including micro loans, education finance and MSME finance.

“We are in the process of getting feedback from investors. It may require some policy amendments at their end to enable taking exposure to unrated or non-investment grade entities even through a structure,” Fernandes said.

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