NBFCs in the country are predominantly wholesale funded, which exposes them to tighter market conditions, but it has been small-to-medium-sized NBFCs and those with large, long-tenor construction-finance portfolios that have had the most significant difficulties in refinancing debt over the past year, says Fitch Ratings. The impact on large retail lenders has been less pronounced, while their stronger assets-and-liabilities maturity profiles would, in any case, provide them with more leeway if they did lose access to the debt markets.
The failures of IL&FS in September 2018 and Dewan Housing Finance in June 2019 had sparked sector-wide concerns. Mid/ small NBFCs and NBFCs with large, longtenor construction-finance portfolios have been most affected. Near-term pressures are likely to persist. Large asset-finance and consumer-finance NBFCs controlled by larger corporates are less affected.
NBFC business models that compete with banks have weaker pricing and funding flexibility. Competition is usually around corporate loans, large-ticket housing loans, new commercial vehicle loans, and largeticket loans against property (LAP) – most of which are associated with greater concentration risks.