Non-bank lenders to be most impacted by ongoing lockdown: Report

Crisis-hit non-bank lenders will be the most impacted by the ongoing lockdown as repayments by borrowers take a hit but there is no comfort on the liability front, a report said on Monday.

Among this grouping, the microlenders which are dependent on field visits by agents for collections will be the most affected, domestic rating agency Crisil said.

The country has been put under a three-week lockdown by the government to arrest the spread of the novel coronavirus. The COVID-19 pandemic has already left 29 dead and over 1,000 infected. The NBFCs have had a difficult time since the IL&FS crisis in late 2018 with many suffering a liquidity crunch.

The RBI has given a three-month moratorium to borrowers on term loans because of the likely stress, and Crisil said borrowers having liquidity will prefer to repay in order to reduce their interest outgoes.

"It is on liabilities side that challenges could emerge for NBFCs with a high share of capital market borrowings," its director Ajit Velonie said.

He explained that this is because no moratorium has been announced so far for capital market borrowings such as bonds and commercial paper, and repayments on these will have to be made on time, during a period when collections would be impacted significantly.

The agency said redemption pressures faced by mutual funds, which is a large investor base for high-rated NBFCs, can exacerbate things for NBFCs as they are unlikely to roll over commercial paper or reinvest in debentures immediately to any substantial extent.

The 21-day lockdown will have a near-term impact on collections and fresh-loan disbursements of NBFCs, it said, adding that asset class, income source of the customer, level of fieldwork in operations, and proportion of cash collections will determine the impact.

While the microlending segment will be under the most pressure, home loans that are majorly taken by the salaried and deducted through standard instructions to the bank will be least impacted, it said.

The second-largest asset class of vehicle finance would also face challenges in commercial vehicle loans because curtailed traffic will lead to weak earnings for fleet operators, it said.