NBFCs plan bonds to raise funds

Normally, debt instruments are secured by creating a charge on the immovable properties of the company. But many NBFCs, it is gathered, are floating secured debt instruments by creating a charge on their receivables.

The market has, of late, been flooded with a flurry of such debt instruments from many NBFCs. Ever since RBI came out with a mandatory credit rating-linked graded system of NBFC access to public deposits, unrated finance companies have found themselves squeezed. Even the rated firms have been caught off the backfoot. For, RBI has directed ratedNBFCs to repay excess deposits over and above the permissible limits under the new guidelines within a time-frame.

What has surprised many a long-time watcher of NBFCs is the manner in which these companies rushed in to devise newer strategies without comprehending legal compulsions. Raising fixed deposits requires just the creation of a debt by affixing signature on a revenue stamp. But floatation of secured bonds will necessitate payment of stamp duty, creation of charge and appointment of trustees.“I wonder how many of them have gone through all these procedures,”asks the chief executive officer of a leading NBFC in the city. Legal experts, however, are of the view that the NBFC which floats secured bonds could pay a consolidated stamp duty on such instruments.

The recourse to such secured bonds has twin objective. For one, NBFCs, through this route, manage to retain, in a different form, fixed deposits which could not be renewed because of the latest RBI stipulations. For another, by cleverly fixingthe maturity period of these secured bonds below 17 months and 25 days, they avoid the scrutiny of RBI and Sebi.

RBI imposed a credit rating-linked graded system of access to deposits on NBFCs to ensure that the investing public is not taken for a ride by these firms. With NBFCs of all hues `privately’ making a beeline for debt market, the very purpose of RBI guidelines may have already been defeated.

In the meantime, leading NBFCs are tying up with regional banks and even cooperative banks for `at-par’ facility following the reluctance of the SBI to provide the service at more than 100 designated centers.

NBFCs depend on the `at-par’ facility for servicing interest warrants issued to investors against fixed deposits with them.

Many NBFCs like Birla Global Finance and Lloyds Finance have tied up with a string of smaller banks with different regional presence to service their investors.