NBFCs Issue Ultra-Short-Term Debt Papers to Fund IPOs

Non-Banking Financial Companies (NBFCs) have started to issue ultra-short-term commercial documents since the beginning of this week. The sole objective here is to raise money as quickly as possible for the ongoing as well as the upcoming IPOs.

Know About the IPO Scene

With two ongoing initial public offers and four more to go live in the next two weeks, the stock market is busier than usual.

Ongoing IPOs:

1. FSN E-Commerce Ventures Ltd. (28 October 2021 to 1 November 2021)
2. Fino Payments Bank Ltd. (29 October 2021 to 2 November 2021)

Upcoming IPOs:

1. Policybazaar (1 November 2021 to 3 November 2021)
2. SJS Enterprises Ltd. (1 November 2021 to 3 November 2021)
3. Sigachi Industries Ltd. (1 November 2021 to 3 November 2021)
4. Paytm (8 November 2021 to 10 November 2021)

Taking a Detailed Look

To cope up with the massive IPO rush, NBFCs have begun to issue ultra-short-term commercial documents to their clients. These documents are IPO-CPs with a maturity of 8 to 12 days.

Previously, these commercial papers used to get issued at 80-120 basis points more than the rates put forward by NBFCs for papers maturing in 3 months. However, this difference in basis points has now steeply climbed to 200 because of caution among investors.

As a result, the Reserve Bank of India has put limitations on the amount lent by NBFCs to a single investor. As per the limitation effective from 1 April 2022, single investors can only purchase stocks in initial public offers up to an amount of Rs. 1 crore.

This, in turn, will minimise the bidding capacity of high net-worth bidders in initial public offers.

NBFCs in a Nutshell

Non-Banking Financial Companies are entities that provide banking and financial services. They abide by the regulations set by the Reserve Bank of India and offer banking facilities like credit services, loans, retirement planning, TFCs and more.

However, they cannot be legally defined as a bank since they cannot take any kind of deposit from the public.

Nevertheless, these establishments play a vital role in the country’s economy by offering services in both urban and rural areas. Their services mostly include sanctioning loans to new ventures to help them grow.

Bottom Line

Non-Banking Financial Companies have raised over Rs. 40,000 crores between 25 October 2021 and 28 October 2021. Aditya Birla Finance and Bajaj Finance have emerged among the large borrowers here.

Tata Capital Financial Services has also raised funds here via IPO-CP. Most of these commercial papers come with a value date between 1 November 2021 and 2 November 2021.

You can follow the Angel One Blogs for further updates regarding these IPOs.

 

Frequently Asked Questions

1. Who are the leading NBFCs of India in 2021?

Among the leading NBFCs of India in 2021 are Power Finance Corporation Ltd., Shriram Transport Finance Company Ltd., Bajaj Finance Ltd., Mahindra & Mahindra Financial Services Ltd. and Muthoot Finance Ltd.

2. What is the value date on commercial papers?

The value date on commercial papers signifies the day when investors receive their debt papers in exchange for money.

3. How much do NBFCs account for in India’s GDP?

Non-Banking Financial Companies alone caused a 12.5% increase in India’s GDP.