Non-Banking Finance Companies’ Bad Loans To Rise To 5-7% In Current Fiscal.

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According to a report circulated by the credit rating agency “ICRA Limited” (formerly, Investment Information and Credit Rating Agency of India Limited) the assets of all sorts of Non-Banking Finance Companies (NBFCs) will worsen and drop by at least 5-7% in the present financial year (2020-2021) mostly attributable to the blow that the Indian economy received due to sudden outrage of the demonic pandemic.
The report further analysed that an almost 70 day lockdown till 30th May, 2020 and till now has made our economy moribund and has suspended the cash-flow of NBFCs borrowers and the borrowers who are in the process of surviving and sustaining their businesses and operations over the repayment obligations of the existing loans.
It’s true that the moratorium extended by the NBFCs following instructions and guidelines from Reserve Bank of India (RBI) to their borrowers is likely to provide them with much-desired breathing space. But, such whiplash and decision of offering moratorium will not be enough for preventing the quality of assets from performing noticeably and sizeably below standard which resulting in considerable increase in bad debts in the books of all NBFCs.
Assuming a slippage of 5-10 per cent of the Assets under Management (AUM) under the moratorium, the incidence of non-banking NPAs could increase by 5-7 per cent in March 2021 from about 3.3-3.4 per cent in March 2020, the rating agency reported.
The report also highlighted some green areas by saying that RBI’s moratorium is not applicable for market instruments such as Non-Convertible Debentures (NCDs) and Commercial Papers (CPs) which account for almost 35-40 per cent of the outstanding borrowings and NBFCs could find out an easy escape route to make good of the losses on account of bad loans towards recovery of business and fund.
The report also focused on capital market funding by NBFCs where the non-banks can expect a sharp and staggered increase and growth in the liquidity portfolio without losing stability in the market and expectation is also there to find its way to only large, better-rated entities with strong support.
In a nutshell, the NBFCs are advised to increase their credit risk analysis to minimise the resultant bad loans in the present perspective and the targeted finance and funding might get seriously injured for lack of sufficient business activities on the part of the borrowers and thereby the demands will tend to be curbed in approaching and taking financial assistance from NBFCs.
The catch line of the report is that the government’s fully-guaranteed special liquidity scheme and a partial guarantee scheme for NBFCs are likely to see a subdued response among all negatives and as stimulant factor.


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