NBFCs under pressure as Covid cases rise, lockdowns return 

NEW DELHI:  India’s non-bank financial institutions (NBFC) are likely to face renewed asset quality and liquidity risks in the face of a renewed surge in Covid-19 cases. This could act to delay recovery in the sector, noted Fitch Ratings on Thursday. 

A key Covid hotspot is Maharashtra, which contributes 13-14 per cent to the national GDP, while several other states—Gujarat, Punjab, Delhi, and Chhattisgarh, which together account for about 16 per cent of national GDP—have also implemented additional restrictions including night curfews and capacity limits.
The agency noted that economic challenges are likely to increase if recent restrictions to contain the pandemic are expanded or prolonged, leading to greater economic and operational disruption.

“The economic impact of these curbs will depend on their duration and severity. Expanded curbs could derail the fragile recovery in India’s NBFI sector,” Fitch added. The agency added that a resurgence in asset-quality pressure for NBFIs could lead to renewed funding strains for the sector, particularly since many government schemes that provided funding relief to NBFIs in 2020 have expired.

These include the Partial Credit Guarantee scheme supporting asset-backed securitisation and the Special Liquidity Scheme providing government-guaranteed short-term funding relief. Fitch had revised India’s economic growth forecast for the fiscal year ending March 2022 (FY22) to 12.8 per cent in March 2021, from 11 per cent in the previous forecast in December.