India Ratings has indicated that the NBFCs would struggle in the first half of next year owing to the end of mandatory repayment exemptions

NBFCs that lend loans to real estate companies are likely to come under pressure in the first half of next year when about Rs 70,000 crore worth of advances to infrastructure would not enjoy mandatory repayment exemptions. India Ratings said that with refinancing options looking bleak for these developer companies due to high costs of fund and liquidity tightness, some of these exposures may turn delinquent. The Fitch group’s Indian rating agency demoted its mid-year outlook for NBFC sector to negative from stable. 

Pankaj Naik, Associate Director, India Ratings and Research, said that about 65-70 percent of the loan book that NBFCs have is still under moratorium where interest payment is in progress and principle payment will start from the first half of the next fiscal year. Delinquencies may increase on a case to case basis. 

Refinancing has come down as many players are not keen on taking fresh exposure in real estate space which has led to an increase in credit costs. The analyst noted that wholesale NBFCs and Housing Finance Companies (HFCs) might reel under additional stress as potential defaults are deteriorating solvency of many non-banks already grappling with higher costs of acquiring credit. Data from the rating agency indicates that 40 percent of all real estate outstanding loans are with non-banks including major ones like L&T Finance, Piramal Housing, JM Financial and Altico.

India Ratings pointed out that many of the infrastructure developers may be forced to make asset sales and opt for other restructuring options to meet repayment obligations. India Ratings also slashed the growth forecast for NBFCs for FY20 to 10 to 12 percent from 15 percent in FY19 considering the funding challenges and a slowdown in economic activity. 

India Ratings said that NBFCs have been grappling with a double whammy with the funding tightness being accompanied by possible asset-side headwinds considering slowing demand. NBFCs had to heavily rely on alternative measures like asset sale – securitization and direct assignments of loans to generate liquidity. The agency has also downgraded the outlook for the loans against property (LAP) segment.

Source: ET Markets

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