In view of COVID-19, RBI could look at announcing a one-time restructuring scheme for enterprises, which are facing deeper stress, the rating agency said
With the outbreak of novel coronavirus, or COVID-19, funding challenges could mount again for non-banking finance companies (NBFCs), especially for smaller ones, CARE Ratings said in a report. This is because banks have become more selective in extending credit owing to the risk aversion, leading to tighter liquidity concerns, the rating agency said.
The Reserve Bank of India (RBI) had announced a few schemes to make liquidity available for NBFCs, including targeted long-term repo operations. The government too announced special liquidity facilities worth Rs75,000 crore for NBFCs. The RBI too announced a temporary increase in group exposure limits to 30 percent from 25 percent to enable larger business groups to seek additional funding from the banking system.
According to CARE, banks’ outstanding to NBFCs registered its highest growth of 48.6 percent from September 2018 to April. Post September 2018, NBFCs are struggling to raise funds from capital market with higher borrowing cost and lack of availability of funds and so, there has been a shift to bank borrowings from market borrowing.
After the liquidity crisis triggered in the NBFC space, MFs withdrew over 40 percent of their investments from this category. The percentage share of funds deployed by MFs in commercial papers (CPs) of NBFCs in April fell to 3.3 percent of debt assets under management (AUMs, the lowest since September 2018 when it was 9.5 percent) and the amount held declined to just Rs.0.44 lakh crore. The decline in investments in corporate debt paper of NBFCs stood at Rs.0.9 lakh crore in April and was the lowest since September 2018, CARE said.
