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Crisis ahead for NBFC

Crisis ahead for NBFC 

COVID 19 brings in a lot of risk for NBFC. 
The industry believes that the aftermath of this virus is surely going to infect Balance sheets of various NBFC. 

Risk of NPA

Experts believe that being economy coming to a standstill situation, there may be layoffs, salary cuts, promotion deferments. This is seriously going to hit the lower middle class and the poor section as with limited income, repaying loans like car loans, credit cards, home loans, etc. Since, banks often refrain from lending to such sectors, NBFC’s act as a boon for this sector and provide them a loan at a slightly higher rate. The situation is a win-win for both. 
However, these loans now have become a bone stuck in the neck , with the majority of people either delaying EMI’s or unable to repay such amount leading to an increase in Non-performing assets (NPA).

Increase in Credit Cost

Since banks already facing the heat of corporates defaulting and increase NPA’s, they prefer sitting on cash, rather than lending to NBFC. This has made raising funds difficult for NBFC, who are now raising funds from the bond market at high rates, which in turn would make it’s loan expensive and forcing more people to default or move to banks for loans.  This would result in massive degrowth and valuations will see a bump.

Relief from RBI Awaited

RBI has provided relief measures to the bank to ease its liquidity position. With increasing asset-liability mismatch situation faced by NBFC, it’s time that RBI provide some ‘ Sanjeevni ‘ to immune NBFC deteriorating health
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