Non-banking financial companies (NBFCs) may face a tough time following the Reserve Bank of India’s recent directive on providing a moratorium on repayment.
This is because though these entities are providing moratorium to their customers, they still have to continue repaying banks and other borrowers. NBFCs are highly dependent on banks for funding.
“NBFCs face a double whammy because they are offering moratorium to customers despite not getting one themselves from their lender-banks. That will put a significant pressure on the liquidity profiles of many NBFCs,” Crisil said.
According to Crisil, liquidity pressure will increase for almost 25% of the Crisil-rated NBFCs if collections do not pick up by June 2020.
These NBFCs have ₹1.75 lakh crore of debt obligations maturing by then.
“With collections being minimal and the moratorium [applicable] only for their borrowers, raising fresh funds is critical, especially because NBFCs, unlike banks, do not have access to systemic sources of liquidity and depend significantly on wholesale funding,” it said.
Crisil said while ₹1 lakh crore has been made available through the RBI’s targeted long-term repo operations (TLTRO) window, only half of that is earmarked for primary issuances.
“Also, an expected scramble for funds means corporates and government-owned financiers will also be interested in this window. Consequently, only higher-rated NBFCs may end up benefiting,” it said.
Crisil said while larger and better-rated NBFCs may still be able to manage the situation, smaller or lower-rated NBFCs, which have significant dependence on bank funding, will find the going extremely tough.
“Given the challenges in access to fresh funding, and presuming nil collections, Crisil’s study underscores that a number of NBFCs will face liquidity challenges if they do not get a moratorium on servicing their own bank loans and are forced to meet all debt obligations on time,” said Krishnan Sitaraman, senior director, Crisil Ratings said.