Woes of the Crisis-Hit NBFC Sector

NBFCs lending to real-estate companies may come under pressure in the first half of next year, when about Rs. 700 billion worth of advances to infrastructure developers would no longer enjoy mandatory repayment exemptions. Outstanding commercial real estate loans by banks, housing finance companies (HFCs), and NBFCs stood at Rs. 6 trillion in FY19, of which Rs. 1 trillion was from NBFCs.

“About 65-70% of the loan book that NBFCs have is still under a moratorium, where interest payment is happening and principle payment will start from the first half of the next fiscal year,” said Pankaj Naik, Associate Director at India Ratings and Research.

Increasing credit costs can put additional stress on wholesale NBFCs and Housing Finance Companies (HFCs). If the refinancing pressure continues, there could be severe asset quality challenges for these lenders. With the economic slowdow, subdued demand and asset-side headwinds, NBFCs will continue to struggle.

Measures taken by the government have not brought any respite from the stress yet, and are anticipated to play out only over the medium or long term. Will the government measures eventually bring about relief or will the economy be struck by another blow?