IL&FS effect: NBFCs slam brakes on recruitment

Were on a hiring spree just a few months back

Mumbai, 13 November

Non-banking financial companies (NBFCs) have applied the brakes on hiring as the liquidity squeeze in the aftermath of the IL&FS crisis has hit their lending business.

Until a few months ago, NBFCs were busy recruiting, going to the extent of poaching top talent from competitors including banks. In FY18, for instance, 6070 per cent of NBFC hires were from the banking sector, show industry estimates. “The sentiment has turned sour and nobody is hiring,” said Jaspal Bindra, executive chairman at Centrum Group, which has hired roughly 50 executives from banks at mid and senior levels, in the last two financial years. He added that even the bigger NBFCs had stopped disbursing loans and many others had re-priced aggressively. “Why would you hire if there is no expansion or revenue growth?”

Rating agency Moody’s had last month said that a continued liquidity crunch in markets, following defaults by IL&FS and its group entities, will erode the credit profile of NBFCs. The agency also said the liquidity tightness could lead to higher financing costs, making it difficult for these entities to roll over their liabilities given they had relied heavily on market borrowing to fund asset growth.

“There has been a slowdown in hiring for over a month now, with quite a few larger NBFCs putting a freeze since early October,” said Pooja Pagnis, Head (banking & financial services), TeamLease Services.

Industry observers believe that smaller NBFCs — especially those with an asset book of less than ~10 billion — could be in for more trouble. Some of these may be compelled to shut shop, faced with greater

liquidity constraints and stricter regulatory guidelines. The Reserve Bank of India recently cancelled the licenses of 31 NBFCs.

“Institutions backed by strong investors and private equity will continue to attract talent. However, the smaller players will have difficulty in attracting the right talent as scaling up the business will be more challenging given the capital squeeze,” said Reet Bhambhani, Partner at EMA Partners India.

The crash in stock prices could impact wealth creation opportunities for seniorlevel recruits, while bonus and incentive payouts for FY19 could be affected for employees across the board, say experts. Share prices of several top NBFCs have slid 30-60 per cent in the past three months.

“Wealth creation was a key driver for people joining NBFCs. Considering that valuations have tapered off, it will be more challenging to attract the right talent as wealth creation will not be as rapid as before,” said Bhambhani.

Until a few months ago, NBFCs were recruiting chief executive officers with annual packages of ~20-45 million. CXOs could get anywhere between ~10 million and ~20 million depending on the size, complexity and evolution of the organisation. Start-up NBFCs reserved

3-4 per cent of sweat equity for chief executive officers and 6-8 per cent for the rest of their senior management. Accounting for cash salaries and employee stock option plans (ESOPs), the opportunity for wealth creation over 3-5 years was seen to be as high as ~100-200 million, according to experts. The liquidity situation may ease somewhat going forward. The RBI has allowed banks to provide partial credit enhancements for NBFC bonds. Banks’ single-party exposure for lending to NBFCs has also been raised to 15 per cent from 10 per cent up to December 2018.