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NBFC Credit Crisis

Jan 18, 2020, 08.57 PM IST

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NBFC CREDIT CRISIS

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  • Many termed the immediate aftermath of IL&FS as India's Lehman moment. No doubt India's NBFCs had in 2019 their worst year in a decade amid a severe and protracted struggle for funds. But when there were just two failures which the industry took in its stride without needing any bailout, what does it indicate? Was it really a Lehman-like moment?

    The performance of the residential segment continues to be muted, owing to the prevailing liquidity crunch.

    ICRA ratings suggest bank credit is expected to grow at 6.5-7.0% during the current fiscal ending March '20.

    Banks undertake purchase of retail pools under the securitization mode to meet their priority sector and retail lending requirements. As per central bank rules, the risk and rewards of the securitization pool is to be borne by the buyer without any recourse of credit loss to the seller.

    JM Financial Home Loans, the affordable housing focused lending arm of JM Financial Group, is eyeing a five-fold increase in loan book next fiscal with the co-lending tie-up it has entered into with Bank of Baroda.

    However, a majority in the once buzzing NBFC sector will continue to reel under liquidity concerns with the economic slowdown putting elevated pressure on asset quality.

    ABFL listed its CPs on NSE with a value date of November 28, 2019 and maturity date on February 7, 2020.

    NBFCs have been facing liquidity crisis following the bankruptcy of IL&FS in September 2018.

    The real crisis has been in the blue-collar, semi-skilled, unskilled manual labour space, including those in the rural economy, where the slowdown in the economy has made the deepest impact, starting from severe loss of mandays in the automobile sector, to marked deterioration in the construction and exports sectors, and then through the demand compression for agro-industries.

    The NBFCs have also sought several tax exemptions.

    "India's growth is now seen at a slower 5.1 per cent in fiscal year 2019-20 as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion in the financial sector and a credit crunch. Also, consumption was affected by slow job growth and rural distress aggravated by a poor harvest," Asian Development Bank said.

    Liquidity remains a worry for the NBFC sector; loan sanctions fall 34% in September quarter.

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