Covid 2.0 can cause a sudden spike in NBFCs

As non-bank financial firms seek to mitigate the impact of the second wave of Covid on their balance sheets, estimates suggest that about a tenth of their loan books could be reformulated, almost three times more than during the first wave. Profitability could also take a hit in the June quarter as collection efficiency improved over the past month.

“The revisions in the second wave will be at least 23 times higher than what we saw last year because there is no general moratorium this time; So we have to save everything we can, “said the CEO of a large non-bank lender. We expect earnings to decline significantly this quarter (June). The head of another lender said the effects of a major revision in June and September -Quarter will be seen.

“Several NBFCs are referring to the June quarter revision and implementation will happen in the following months, so you will see a relatively high proportion of revisions in the final quarter. We’ve seen a dramatic increase in customers who haven’t made payments and these companies need to hold hands, ”said the CEO, asking for anonymity.

In its most recent monetary policy announcement, the RBI announced version 2.0 of the resolution framework for borrowers with an exposure of less than 25 billion at the end of March 31: This restructuring window is open until September 2021.

“Unlike last year, RBI has provided limited loan restructuring support, which could result in a sharp increase in the total restructured portfolio for most NBFCs, including vehicle finance companies,” said Jignesh Shial, research analyst at Emkay Global Financial Services. “We remain concerned about the sharp rise in Level 2 assets, considering that recently restructured loans from the previous moratorium period have been added to the book.” Most non-bank lenders have slowed down new withdrawals, and improving recoveries remains a top priority. , which had fallen to 20% in April and May, showed signs of normalcy in June with the regularisation of economic activity.

While collections for unsecured commercial loans and durable consumer goods continued to have problems, the credit card segment performed better. The vehicle finance segment remained the most vulnerable, with private cars and two-wheelers normalising recoveries and loans for commercial vehicles and passenger cars remaining. under stress.

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