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There will be an increase in asset quality challenges of non-banking financial companies: CRISIL Ratings

Saransh Pandey

  • September 19, 2020
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    There will be an increase in asset quality challenges of NBFC that are already suffering from the economic slowdown

According to the prediction made by Crisil ratings, there will be an increase in asset quality challenges of non-banking financial companies that are already suffering from the economic slowdown since last fiscal due to the rapid increase in Covid-19 infection and intermittent lockdowns. The trend in monthly collection efficiency till August 31, 2020, shows that there is time before reaching pre-pandemic levels, according to the rating agency. The recent restructuring scheme brought by the Reserve Bank of India would be a boost for the reported non-performing assets, and the pace of normalization and ultimate credit losses would be key parameters to track. Loan misconducts of NBFCs could reach up to 50-250 basis points this fiscal. This will in turn depend on the segment of operation because of vulnerability in borrower cash flows, according to the rating agency. This estimation is base-case, without taking into consideration the loan restructuring and the Covid-19 affliction curve. Research by Acute Ratings shows that Financial system loans under moratorium have fallen to 25% for the June-July period due to the restarting of business activities. The system-wide moratorium levels were at 50% at the end of April, according to the Reserve Bank of India’s bi-annual financial stability report. A three-month moratorium was announced by RBI in March, along with a freeze on rating action on customers availing the relief. This was extended by another three months till August. The rating found that despite the fact that there has been an improvement across segments over the past four months, but the collections in the wholesale, MSME, and unsecured segments are still much less than before the pandemic. Now after the ending of the moratorium, because of slow resumption of economic activity and continued local restrictions, will affect the self-employed borrowers more. On the other hand, the salaried borrower segment will be more resilient despite pay cuts and job losses. 

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