Money & Banking

Moratorium on loans taken by NBFCs will offer material liquidity support: Crisil

Mumbai | Updated on June 17, 2020 Published on June 17, 2020

With debt repayments remaining high in the near term, especially in June 2020, the availability of a moratorium on loans non-banking finance companies (NBFCs) had taken from banks will offer them material liquidity support, according to Crisil.

The credit rating agency underscored that June is crucial with nearly ₹1.25-lakh crore of repayments, which is half of the ₹2.50-lakh crore due through August.

Factoring the lumpiness of repayments in June and potential impact on collections due to the extension of moratorium, Crisil said support from banks will be crucial for a number of entities.

As per Crisil’s analysis of the NBFCs it rates, their liquidity covers have not depleted significantly over the past two months. However, fund-raising continues to be a challenge for most NBFCs because investors remain risk-averse

Liquidity cover is measured as “cash available with NBFCs + unutilised bank lines / debt falling due”. Debt falling due for the next three months is excluding bank loans where NBFCs have received written confirmation from bankers on getting the moratorium.

The agency said liquidity covers have not depleted significantly because NBFCs managed some collections in April and May, which varied depending on the segment of operations. Negligible disbursements also helped prop up liquidity covers to some extent, compared with earlier estimations, it added.

In its credit alert in April, Crisil had indicated that liquidity covers for NBFCs could reduce in the event of weak incremental funding, collections, and limited moratorium on their bank borrowings.

Scenarios

In the base-case scenario, Crisil assessed that the proportion of NBFCs with liquidity cover of less than one time (low liquidity cover) will be 8 per cent during the three months through August. Its earlier analysis had estimated 23 per cent of NBFCs will have low liquidity cover in this period.

However, in the stress-case scenario, the proportion of companies with low liquidity could go up to 25 per cent, underscoring the importance of NBFCs ratcheting up collections.

Krishnan Sitaraman, Senior Director, Crisil Ratings, said: “Despite cash outflow owing to debt repayments, a combination of partial collections, incremental funding, and negligible disbursements have supported the liquidity levels of NBFCs.

“But June is crucial with nearly ₹1.25-lakh crore of repayments, which is half of the ₹2.5-lakh crore due through August.”

However, if banks were to offer moratorium on them, the proportion of NBFCs with low liquidity cover reduces significantly to just 5 per cent from 25 per cent envisaged in our stress-case scenario, Sitaraman added.

Incremental funding

In terms of incremental funding, Crisil opined that capital market issuances have dropped substantially, with investments by mutual funds – a key investor segment – in NBFC debt plunging to the lowest level in more than two years.

The securitisation route, too, has seen very few transactions consummating in the past few months due to concerns over asset quality and lack of granular track record of collection efficiency after the pandemic onset, the agency said.

At the same time, the government and the RBI have also announced a number of measures to ease fund flow to the sector; their effectiveness, though, is yet to manifest, it added.

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Published on June 17, 2020
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