HYDERABAD: Non-Banking financial companies (NBFCs) may likely face liquidity challenges due to lack of clarity on the RBI’s moratorium on their bank loans and poor collections owing to the nationwide lockdown, according to ratings agency, Crisil.
“Given the challenges in access to fresh funding, and presuming nil collections, a number of NBFCs will face liquidity challenges if they do not get a moratorium on servicing their own bank loans and are forced to meet all debt obligations on time,” it noted.
NBFCs have sought clarity from the central bank on applicability of moratorium and access to a formal liquidity window, which may provide some structural liquidity support to them similar to that available for banks.
According to Krishnan Sitaraman, senior director, Crisil, almost three-fourths of NBFCs will have a liquidity cover of over three times to meet capital market debt obligations up to May 2020, when the moratorium will end, while only 3 per cent have less than one time liquidity cover.
If there is no moratorium on bank debt, only 37 per cent of the CRISIL-rated NBFCs will have a liquidity cover of more than three times for their total debt repayments up to May 31, 2020, while those with less than one time would increase to 11 per cent, he said.
“If business disruption continues beyond the moratorium period, considering debt repayments till June 30, 2020, almost a quarter of these NBFCs would have a liquidity cover of less than one time with debt obligations aggregating to Rs 1.75 lakh crore,” he added.
According to Crisil, raising fresh funds is critical for NBFCs because, unlike banks, they lack access to systemic sources of liquidity and depend on wholesale funding. Mutual funds, a large investor base for higher-rated NBFCs, have been facing redemption pressure and therefore are unlikely to be a material source of fresh funding or refinancing for NBFCs. Securitisation, which many NBFCs were relying on so far, may also not see much transactions in the near term because of the moratorium.
While better-rated NBFCs may manage the situation, smaller or lower-rated NBFCs, which have significant dependence on bank funding, will find the going extremely tough according to Crisil.Measures such as enhancement in bank lines, ad hoc or special Covid-19 credit lines from banks, would offer only a partial relief to the sector,the ratings agency added.