‘Liquidity buffer at NBFCs cushions fall in Q1 collections’

Higher liquidity cover at NBFCs enabled them to service debt in the near term, and cushioned the impact of lower collections during the second wave of COVID-19, Crisil Ratings said in a study of entities rated by the agency.

“That is a change from last year, when asset quality and liquidity fears multiplied after a moratorium on repayments and stringent lockdowns affected collections. This time around, the build-up in liquidity has been a crucial offset,” the ratings agency said, adding that collections had again been affected in the current fiscal by the second wave. In the wake of the second wave, Crisil conducted the study considering two stress-case scenarios. In the first scenario, in view of the collection challenges in the first quarter of FY22, it assumed collections over the next quarter at 70% of the levels in the past couple of quarters. In the second scenario, collections were assumed to halve.

In scenario 1, 96% of NBFCs were found to have liquidity cover for three months’ worth of debt repayments. In Scenario 2, the number was only marginally lower at 95%. Based on scenario 1, only 4% of NBFCs had low cover (less than one time), compared with 8% in June 2020, and 23% in April 2020.

“We find three factors have supported liquidity: fund-raising through special government schemes, improving collections in the second half of fiscal 2021, and limited disbursements,” the agency said.

It pointed out that a number of NBFCs had increased provisioning levels in the past two fiscal years, and had thus enhanced buffers for asset-side risks.

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Printable version | Sep 27, 2021 3:37:11 AM |

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