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Market disinterest in NBFCs, HFCs & MFIs likely to continue: Kunj Bansal

‘They are gasping for liquidity as banks have not been giving moratorium to them’

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Last Updated: May 22, 2020, 07.26 PM IST
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Kunj Bansal-1200
Banks to some extent are at an advantage as they do not have the liquidity problem.
Like HDFC Life and ICICI Lombard in the insurance space, says Partner & CIO, Sarthi Group.

It is a bit of a catch 22 situation because if the moratorium does get increased, there are those NPA concerns which pile up and if they do increase the moratorium, people won’t be able to pay up. What happens then? Are we going to see further pressure within financials as the market tries to readjust to something that we are already staring at for banks as well as financial lending institutions?
I think the bigger challenge here is that the RBI has not addressed the issue of money availability to NBFCs, housing finance companies or microfinance companies. While they have to give moratorium to their borrowers, they have been complaining that in turn the banks have not been giving moratorium to them. So that is creating a liquidity problem for them besides other issues of asset quality delinquency; so that is a bigger challenge.

As an economy, on one hand we have the whole banking system surplus with almost Rs 8 trillion surplus liquidity and on the other hand, these businesses which have helped the economy grow in the last five-ten years have come to this stage today because the banks could not do their job. These businesses are gasping for breath, gasping for liquidity and gasping for money. So that is a very big challenge here. Of course, the fact that with the increase in the moratorium, the whole issue of whether after the moratorium period, how many of them will be in a position to pay and how many will have the intention to pay will be a very big challenge. As a result, in terms of financial performance and share price performance, there is a likelihood that the underperformance of this space within BFSI can continue for some more time. We could see market disinterest continuing in the NBFCs, microfinance companies and housing finance companies.

What about the large private banks because they as well are getting hit; even a Bajaj Finance has taken a serious knock from its all-time high. Do you think these declines should be bought into?
I think after today’s RBI announcement of a fresh increase in moratorium period, we can see some more pressure coming in. We can see some more adjustments in the prices of these stocks, especially the NBFCs, the microfinance and housing finance companies because they will have further pressure. Banks to some extent are at an advantage as they do not have the liquidity problem. They have a surplus. In fact, they are sitting on surplus liquidity. They have the deposits continuing to come with them with the fall in the interest rates and they will probably further try to reduce the deposit rates. So those benefits of liquidity as well as margins will not be available to NBFCs. Banks will have that benefit although banks retail lending is also likely to get affected in a similar way as in the case of NBFCs and others but banks still have a business model on which they will continue. So on all the business loans that they have lent out and on all the corporate loans, on all the project loans, hopefully some of them will continue to remain standard, some more can get into the quality issues of NPA. But in that book, they will continue to earn. It is the problem with the non-banking financial institutions wherein they hardly have any book which is likely to offer them that respite.

What else have you been doing in this current market? Anything that you are looking to sell or add on these dips?
If I look at the development in the corporate sector over the last three months, we can break the various sectors into two parts; one where businesses almost or rather completely stopped especially in April and first few days of May, say automobiles, consumer durables, air conditioners, refrigerators and things like that. And there are businesses which have been continuing. So clearly pharma is one of them, FMCG is another, annuity-oriented businesses like insurance companies is one of them. So these are where the investment opportunities are available and one should look at. In the current market, while there is a lot of negativity around insurance companies, like a lot of talk that their businesses would not grow which is visible in the premium collection for the months of March and April also; however, the businesses have not gone to zero. The premium collections have gone down in the range of 10% to 15-20% depending on the company and sectors but the businesses have not gone down to zero. The valuations corrected quite a lot in the late part of March and beginning of April and have risen since then but to me, it still looks good. So very specifically speaking, HDFC Life is one such investment opportunity in the life insurance sector. ICICI Lombard is another investment opportunity.

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