Fitch Rat­ings

Banking Frontiers - - Contents -

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.

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