The retail bonds – which could have a term of 3 to 5 years – could bear interest between 8.75% and 9.5%, market sources said.
The bonds will be issued in tranches with the first tranche of around Rs 500 crore to be issued this quarter.
Cost of raising capital by issuing non-convertible debenture could be 50-75 basis points higher than the cost of a bank loan, says chief executive Udaya Kumar Hebbar
“It is inherent patience. Although the cost is a bit higher, it is a long term source of funds compared to bank loans, it will give stability to our liabilities profile and hence, it is not cost effective even decrease in the long run,” he said.
Lenders’ weighted average borrowing costs were 9.1% at the end of September, 20 basis points lower than a year ago. However, marginal borrowing costs in the September quarter were 20 bps higher at 8.8%.
Bank loans account for about 60-65% of total outstanding loans. “We want to reduce the proportion of bank loans to about 45 percent in the next two to three years,” he said.
The NBFC-MFI comfortably placed in equity, and it has no plans to raise equity over the next four to five quarters.
The company’s capital adequacy ratio was at 25% at the end of September with a tier 1 capital ratio of 24.3%.
Lenders are targeting 24-25% growth in advances in FY23 to around Rs 20,500 crore, in line with a revival of the base sector. It has a total consolidated loan portfolio of Rs 16,599 crore at the end of March.
The portfolio fell in the first half to Rs 16,539 at the end of September after wiping Rs 354 off the books due to bad debts that were 270 days past due.
As part of the loan scheme, the company recently signed an agreement with the United States International Development Finance Corporation (DFC) to raise a $35 million loan over seven years. This reflects the growing confidence among international investors in the long-term growth prospects of India’s microfinance sector.