Money & Banking

Credit squeeze on smaller NBFCs seen abating

Surabhi Mumbai | Updated on August 19, 2019 Published on August 19, 2019

Players hopeful that several measures taken by the govt will improve liquidity further

The liquidity crisis that had squeezed funding to non-banking finance companies (NBFCs) now seems to be partially abating for smaller companies. However, fears of a slowdown crippling consumer demand are now emerging.

Mahesh Thakkar, Director-General, Finance Industry Development Council (FIDC), said: “Smaller NBFCs are now slowly beginning to get credit. This is not across the board but there has been some improvement since the IL&FS crisis. But conditions are yet to go back to normal.”

YS Chakravarti, Managing Director and CEO, Shriram City Union Finance, said while liquidity conditions could be better, bank funding is still available.

“We have raised close to ₹2,500 crore... and another ₹2,000 crore sanctions are in the pipeline. Sanctions which used to take a week’s time earlier is taking a couple of weeks now. The process is a little slow,” he told BusinessLine.

For the quarter ended June 30, it reported a 10 per cent increase in its net profit to ₹253 crore and disbursed loans worth ₹6,275 crore.

Shriram City Union Finance has, however, slowed down on large-ticket size loans and is focusing more on its “bread and butter” which is micro and small enterprise loans of about ₹8 lakh to ₹9 lakh, which continue to do well.

According to FIDC-CRIF data, sanctions by NBFCs in the fourth quarter of 2018-19 dropped by 30.79 per cent to ₹1.96 lakh crore as against ₹2.83 lakh crore in the same period a year ago.

Many NBFCs are hopeful that the slew of measures announced in the Budget and the Reserve Bank of India for the sector will further improve liquidity.

“NBFCs are an essential part of lending, especially for the small consumers. Some of the recent measures by the government are beginning to have an impact on the ground although it is not comparable to pre-crisis times,” said an executive with another NBFC.

Most firms say that lending to auto and two-wheeler segments have taken a hit but are hopeful that the upcoming festival season will improve consumer demand, especially for white goods.

Betting big on a consumer demand and confident about getting funds, at least two firms that BusinessLine spoke to said they have applied to the Reserve Bank of India for an NBFC licence.

“Investors are keen to provide funds. We are hoping to get approval from RBI for our NBFC plans soon and we believe that there is still significant demand in for funding in Tier-2 and smaller towns,” said the executive of one of the company.

Availability of funds for larger NBFCs however, seems to be still an issue, especially for those in sectors like housing finance. “Cost of credit is high and many banks do not want to lend to the perceived risky sectors,” said another player.

Published on August 19, 2019
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