COVID-19 crisis: Divide on NBFCs, as sector stares at a breakdown

New Delhi: There seems to be a divide brewing within industry stakeholders and market watchers on whether or not to support the cash-strapped NBFC sector; which stares at a near breakdown without new relief measures.

However, should the relief be a part of COVID-19 package or not is the going concern, with many stakeholders pointing out other sectors which are also in dire need of help.

At present, the coronavirus crisis again lays bare the wounds in the shadow-banking sector, and the financial companies staring at a mega default of around Rs 1.75 lakh crore. A recent report rating agency CRISIL said that the liqudity cover available with CRISIL-rated non-banking financial companies will decline sharply if they cannot avail on their own bank borrowings the moratorium announced by the Reserve Bank of India (RBI) in its “COVID-19 Regulatory Package”.

It noted that NBFCs face a double whammy because they are offering moratorium to customers despite not getting one themselves from their lender-banks. That will put significant pressure on liquidity profiles of many NBFCs, it added. “CRISIL’s analysis of NBFCs it rates shows liquidity pressure will increase for nearly a quarter of them if collections do not pick up by June 2020. These NBFCs have Rs 1.75 lakh crore of debt obligations maturing by then,” it said.

Another rating agency Acuite Ratings has said that while the gross advances of the NBFC sector stood at Rs 22.76 lakh crore as on March 31, 2019, retail NBFCs constituted Rs 14.48 lakh crore or 64 per cent of gross advances and the selected 11 NBFCs together constitute 43 per cent of these retail NBFC portfolio as on March 31, 2019. It noted that the loans of retail NBFCs are granular in nature and largely cater to self-employed borrower segment where the cash-flows highly are correlated to the economic activity levels and therefore, inherently more volatile as compared to that of salaried individuals.

“One important segment in retail NBFCs is new or used vehicle finance for transport operators, small businesses, farmers and self-employed individuals. Their lending portfolio also includes small and medium enterprises where the ticket size is higher, typically up to Rs. 5 crore. Clearly, the economic disruption brought about by the COVID lockdown will have a severe impact on the incomes of such borrowers for several months depending on the intensity of the outbreak,” said that Acuite report.

Since the RBI has provided a three month moratorium framework (March to May, 2020) for banks and NBFCs, almost all retail NBFCs are expected to provide such a moratorium to their borrowers.

While this is likely to provide a temporary reprieve to the retail borrowers of the NBFCs, it is likely to have significant implications for their liquidity and businesses in our opinion in FY21, it said. (IANS)

Also Read: FICCI recommends special liquidity line for NBFCs from banks

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