Calcutta, July 17: A number of non-banking finance companies (NBFCs) are turning to the retail non-convertible debenture market, faced with high interest rates charged by their traditional lenders such as banks.

Manappuram Finance and Muthoot Finance — the country’s two leading private gold loan providers — are planning to tap the retail non-convertible debenture (NCD) market early next month. In June, Shriram Transport Finance raised Rs 1,000 crore through its second NCD issue by offering a maximum interest rate of 11.6 per cent.

“We are planning to raise Rs 750 crore, including a green-shoe option of Rs 350 crore, through our first retail NCD issue in August,” said I. Unnikrishnan, managing director, Manappuram Finance.

According to George Alexander Muthoot, managing director of Muthoot Finance, the company is planning to raise Rs 1,000 crore.

NBFCs such as Manappuram and Muthoot Finance have so far been dependant on bank loans, short-term commercial papers and private placement of NCDs to meet a large part of their working capital requirement. With the interest rates in commercial paper market and bank lending going up significantly (the interest rate for a less-than-a-year commercial paper now hovers above 10.75 per cent), the NBFCs are turning to the retail NCD market for long-term funds.

Unnikrishnan said 70 per cent of Manappuram’s gold loan borrowers were people who had an annual income of Rs 2 lakh or less. Alexander said more and more middle-income and upper middle-income people were opting for gold loans.

However, these NBFCs face stiff competition with commercial banks starting to give loans against gold.

India is estimated to have 18,000 tonnes of gold holdings worth Rs 36 lakh crore. Realising the potential of the market, several banks have started gold loan portfolios.

Other NBFCs are also trying to enter this market.

The combined loan book size of Muthoot Finance and Manappuram Finance has grown to Rs 23,277 crore in 2010-11 from Rs 2,972 crore in 2007-08, a growth of 683 per cent.

The combined branch network of Muthoot Finance and Manappuram Finance has grown to 4,797 from 1,143 during the same period. However, these two firms lend only against gold jewellery and the average loan repayment tenure is three to four months.