NBFCs set to see another quarter of moderating profits
But the cost of acquiring funds for smaller NBFCs has been high due to credit risks.
By ET Bureau | Updated:
Agencies
Furthermore, a record number of rating downgrades in the quarter will also make it harder for these lenders to access capital from mutual funds, where investor confidence was already rather low.
Non-Banking Finance Companies (NBFCs) are set for a second straight quarter of moderating profits as credit demand in most pockets of the economy remained scarce, while a crisis of confidence kept financing costs high for such lenders.
Even a good monsoon and various measures by the government and the Reserve Bank of India (RBI) to infuse liquidity may not have been enough for a turnaround, according to experts monitoring the sector.
“…the recent impetus by RBI/ government to improve liquidity for NBFCS has provided a breather to smaller retail players toward the end of the quarter,” Kotak Securities said in a note. “However, a severe slowdown in vehicle sales and moderate demand in retail housing likely led to weak disbursements for almost all players, irrespective of their access to funds.”
Furthermore, a record number of rating downgrades in the quarter will also make it harder for these lenders to access capital from mutual funds, where investor confidence was already rather low.
Since September 2018, after the collapse of IL&FS, mutual fund exposure to the sector has fallen by over 11 per cent. MF debt exposure through corporate debt and commercial papers (CP) stood at ₹3,75,500 crore in Aug 2019, as per data sourced by ET from leading brokerage ICICI Securities.
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In such an environment of tight liquidity, banks have rushed in to provide short-term liquidity support only for wellsponsored NBFCs, such as Mahindra Finance and L&T Finance. But the cost of acquiring funds for smaller NBFCs has been high due to credit risks.
“While the government did take a slew of measures to ease the flow of liquidity of NBFCs and HFCs, banks have remained riskaverse offering liquidity and benign rates only to NBFCs and HFCs with strong parentage and asset profile,” according to Yes Securities. “For the others, it has been a challenge to raise money and they had to tap costlier alternative sources.” The brokerage has pegged only gold-loan companies and micro finance institutions to register a quarter of strong credit growth and stable margins.
