Money & Banking

Covid-19 to impact collections, fresh loan disbursement of NBFCs in near term: CRISIL

Our Bureau Mumbai | Updated on March 31, 2020

The 21-day lockdown triggered by the Covid-19 pandemic will have near-term impact on collections and fresh loan disbursements of non-banking financial companies (NBFCs), cautioned credit rating agency CRISIL in its credit alert.

A credit alert is CRISIL’s opinion on a sharp and specific development. It conveys that the agency will revert shortly on the impact of the development on the ratings of those affected.

The agency assessed that the extent of this impact arising from the lockdown will depend on four factors ― asset class, income source of the customer, level of field work in operations, and proportion of cash collections.

CRISIL said the microfinance segment will be the most impacted during the lockdown because collection of repayments involves visit to households; such borrowers typically have weak credit profiles and their income generation activities would be disrupted.

The home loan segment will be less affected because majority of the borrowers are salaried and collections are through auto-debit instructions. In contrast, affordable housing loans could witness challenges because of higher proportion of self-employed borrowers, whose income streams have been affected by the lockdown, the agency said.

The second-largest asset class of vehicle finance would also face challenges in the commercial vehicle loans segment because curtailed traffic will lead to weak earnings for fleet operators.

Krishnan Sitaraman, Senior Director, CRISIL Ratings, said: “We see the impact continuing after the lockdown ends, based on the profile of borrowers. Those self-employed in informal jobs and earning their salary in cash would bear the brunt beyond the near term because the economy will take time to recover.”

CRISIL has already lowered its GDP growth estimate to 3.5 per cent for fiscal 2021 from 5.2 per cent earlier.

Any delay in return to normalcy will put pressure on collections and asset-quality metrics. Additionally, any change in the behaviour of borrowers on payment discipline can affect delinquency levels, cautioned the credit alert.

Fresh loan offtake to slip in near team

CRISIL said disbursement of fresh loans will reduce substantially in the near team and remain muted in the medium term, given the expected challenges on the economic front.

Referring to the moratorium on bank facilities for three months, the agency said this move will help lenders manage their asset classification requirement.

CRISIL expects NBFCs to give relief to borrowers genuinely impacted by the lockdown, while those with the ability to repay are expected to meet their obligations and avoid additional interest burden.

Liability-side challenges


Velonie, Director, CRISIL Ratings, said: “While the moratorium provides some relief on the assets side, it is on the liabilities side that challenges could emerge for NBFCs with high share of capital market borrowings.

“That’s because no moratorium has been announced so far for capital market borrowings (such as bonds and commercial paper) and repayments on these will have to be made on time, during a period when collections would be impacted significantly.”

What can exacerbate the situation is that mutual funds ― a large investor base for higher-rated NBFCs ― are facing redemption pressure, and hence, are unlikely to roll over commercial paper (CP) or reinvest in debentures immediately to any substantial extent, he added. However, any restructuring or re-scheduling permitted by the investors will help alleviate the pressure on repayments.

Published on March 31, 2020

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