Money & Banking

Negative perception, liquidity squeeze have pushed NBFCs to the brink: IIFL Finance chief

Our Bureau Mumbai | Updated on June 09, 2020

Nirmal Jain, Chairman, IIFL Finance Ltd

Starting with the collapse of IL&FS and now the Covid crisis, the risk aversion to the sector has risen further, says Nirmal Jain

Entrepreneurial non-banking finance companies (NBFCs), without the backing of large industrial houses, have borne the brunt of negative perception and outlook, according to IIFL Finance Chairman Nirmal Jain.

In a message to shareholders in the annual report, Jain observed that while it started with the IL&FS collapse, it just kept getting aggravated with a few more large-scale defaults in the NBFC/HFC (housing finance company) sectors.

“To add to the woes, the Covid crisis has further heightened the risk aversion to the sector. In fact, many industry observers and commentators describe this as the worst crisis ever for the sector. But as Benjamin Franklin once said, ‘Out of adversity comes opportunity,’” he said.

Five big drivers

As per the report, IIFL Finance’s board and management have gone in-depth into the risks and opportunities arising from this unprecedented crisis.

According to Jain, many novel ideas came up for discussion and the five big drivers of opportunities are: acceleration of digital technology and adoption; cost saving opportunities from new behaviour such as ‘work from home’; “risk aversion leading to higher savings and cross-sell opportunities; banks with surplus liquidity showing eagerness to buy retail assets; consolidation in the industry resulting in improved margins.”

Jain noted that for NBFCs like IIFL Finance, the last 20 months since the IL&FS collapse have been unprecedented. The liquidity squeeze and perception issues have pushed them to the brink, he added.

“The recent Covid-19 crisis has just added fuel to fire. These are the times when many companies falter in their communication and commitment to their investors, lenders, customers, employees and vendors/ partners. When the storm blows over and dust settles, men are separated from the boys.

“In my view, the best strategy to seize the opportunity and fortify your company’s competitive position is to stick to your knitting — in terms of business as well as culture. Simple products, honest policies and straight talk or seedhi baat,” Jain said.

Sumit Bali, CEO, IIFL Finance, observed that the Covid crisis has presented new opportunities of work-from-home and higher use of digital capabilities, thus making a case for sharp reduction in rental costs, infrastructure and travel cost.

“We are already seeing the benefits of these measures in terms of lower overheads and higher employee productivity,” he said.

 

Published on June 09, 2020

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