Non-performing assets of NBFCs may rise to 5-7 per cent by March 2021, which was around 3.4 per cent in March 2020.
Relief measures given to the borrowers in the form of a moratorium period may severely hit the asset quality of non-banking financial companies in the current fiscal. Non-performing assets of NBFCs may rise to 5-7 per cent by March 2021, which was around 3.4 per cent in March 2020, said a report by rating agency ICRA. The report has also warned that the weak economic growth and the impact on the cash flow of NBFCs are likely to harm the asset quality of NBFCs more than the housing finance companies (HFCs), with the segmental NPA surging up to 9.5 per cent by the end of the current fiscal year.
It is also estimated that the asset under management (AUM) of NBFCs may deteriorate up to10 per cent under the moratorium announced amid the coronavirus pandemic. The risk due to prolonged moratorium period is likely to affect the portfolio of NBFCs as the portfolio under moratorium for some large NBFCs is as high as 70-80 per cent, while for the housing finance companies (HFCs), the average is about 28 per cent, said A M Karthik, Vice-President and Sector Head (Financial Sector Ratings), ICRA.
Given the prolonged financial stress on the NBFCs, the government has rolled out many packages and schemes to provide cushion to the financial companies. However, the efforts could not significantly alleviate the situation, Moody’s analysts said in a note last month.
Meanwhile, to provide financial support to the NBFCs and HFCs, the Modi government today approved a special liquidity scheme through a Special Purpose Vehicle (SPV). The Reserve Bank of India said that SBICAP, which is a subsidiary of the State Bank of India, has set up an SPV to manage this operation and aims to cut the ongoing risks to the financial sector. The SPV will purchase the short-term papers from eligible NBFCs or HFCs, who can utilise the funds under this scheme solely for the purpose of getting rid of existing liabilities.