NBFCs, MFIs credit profiles face liquidity test: Report

MUMBAI: Asset quality of non-banking finance companies and micro finance institutions may worsen if the disruption prolongs beyond 2 months, but if normalcy is restored over the next few weeks, they would be able to absorb the disruption, a report said.

However, the impact of demonitisation on NBFCs and MFIs would depend on the extent of exposure to cash transactions.

“In the near term, financial sector companies operating in cash-intensive businesses, such as microfinance institutions (MFIs) and non-banking finance companies (NBFCs), may stave off liquidity pressures because of undrawn lines of credit from banks and liquid assets,” said Crisil in a report. “If normalcy is restored over the next few weeks, NBFCs would be able to absorb the disruption.”

The Reserve Bank of India has today relaxed the prudential norms on asset classification by an additional 60 days for lenders applicable for dues payable between November 1, 2016 and December 31, 2016. This is expected to provide some respite to the non-banks in managing asset quality in the interim period. “However, if the disruption prolongs beyond 2 months, asset quality pressures could manifest, the report said.