The National Bank for Financing Infrastructure and Development (Nabfid) is opting for Rs 10,000 crore in loans instead of debentures to raise money ahead of the financial year-end demand, particularly for the monetisation of infrastructure assets.
With indications of easing rates in the next financial year (FY25), the government-owned infrastructure financier aims to avoid the long-term fixed rate liability of bonds and debentures. Loans carry an annual reset, providing flexibility for asset-liability management, said a top executive at Nabfid.
CRISIL Ratings had assigned an “AAA” rating for non-convertible debentures (NCDs) aggregating Rs 10,000 crore. However, the rating agency withdrew its rating since the NCDs were not issued. The official said while the lender was using a range of instruments for raising liabilities, about 30 per cent of them would be in the form of loans. In the next financial year, the institution plans to look at enhanced use of External Commercial Borrowings (ECBs) and lines of credit from multilateral agencies.
The lines from multilateral banks, such as the Asian Development Bank and the World Bank, come with long tenure, providing benefits for Asset Liability Management (ALM) as infrastructure loans are for a long period. In some cases, the funding comes on soft terms, helping to reduce the cost of funds.
Earlier, Rajkiran Rai, managing director at Nabfid, had said that interest rates had peaked and are likely to decline by 50-100 basis points over two years. While Nabfid’s one-year lending rate was 8.0 per cent, the annual coupon on 10-year non-convertible securities was 7.43 per cent. This coupon rate is fixed over the maturity period of 10 years.
The government-owned infrastructure funding institution raised about Rs 19,516 crore in nine months ended December 2023 through debentures. Out of it, Rs 10,000 crore had a tenure of 10 years, and Rs 9,516 crore had a tenure of 15 years. The total loan portfolio stood at Rs 21,360 crore as of December 31, 2023.
The Mumbai-based financial institution has taken derivatives cover for more than Rs 10,000 crore to hedge against interest rate risks. These risks emerge from the fixed rate long-term liabilities of debentures and the annual reset for loans, which would increase uncertainty.
First Published: Mar 27 2024 | 5:14 PM IST