Long Recovery Path for Indian Non-bank Financial Institutions: Fitch
A near-term recovery for India's non-bank financial institutions (NBFIs) is not probable, as the sector continues to wrestle with the fallout from the coronavirus pandemic, says Fitch Ratings.
 
An investor poll at the annual Fitch on India event, held in early July 2020, revealed that more than 75% of participants believed Indian NBFIs would take more than one year to show a convincing recovery in light of the effects of the pandemic.
 
It says, "The poll results are in line with Fitch's expectations. We believe the significant economic disruption and prevailing uncertainty caused by the pandemic will impede a return to a more normal operating environment for NBFIs, with consequences for new loan disbursements, asset quality and provisioning, sector profitability, and funding conditions." 
 
"We see uncertainty stemming from depressed consumer demand and a sustained high level of coronavirus infections, notwithstanding a gradual economic reopening that has improved collections and funding availability since June 2020," it added.
 
According to the ratings agency, the sector is nearly two years into its crisis, which was triggered by the default of Infrastructure Leasing & Financial Services (IL&FS) Ltd, and nearly 40% of investors polled still expect it to take another two years before a recovery is evident.
 
"This is longer than Fitch's base-case assumption, but a downside scenario - where the economy continues to struggle to recover in the aftermath of the pandemic - could prolong the sector downturn beyond the two-year horizon and cause irreversible damage to parts of the NBFI industry, with mid- to small-sized franchises at greatest risk of branch closures and staff redundancies to trim costs. In this scenario, more firms could exit from underperforming business segments," it added.
 
As per the ratings agency, construction finance is one area that is ripe for downsizing, with several announced portfolio sales and strategic shifts aimed at shrinking the segment amid delayed construction activity and lower unit sales. Other segments that may also witness consolidation should the downturn persist include infrastructure finance, low-yielding corporate loans as well as loans against property in urban areas.
 
Nonetheless, Fitch says, NBFIs in India are highly differentiated and some lending segments will benefit from a quicker recovery. "Those in the gold-backed loan sector could see an earlier revival due to lower ticket sizes, greater market confidence in the loan collateral and a more robust outlook for the rural sector, where many larger gold lenders are focused. Other commercial segments, such as commercial vehicle finance, should see a gradual pick-up as freight demand improves - although Fitch expects India's GDP to remain weak in the next quarter or two, contracting by 5% in the fiscal year ending March 2021 (FY21) before recovering to 8% growth in FY22". 
 
"We believe a sector turnaround is only likely once loan repayments recover and liquidity buffers have been replenished following months of depressed collection inflow. This would also stabilise NBFIs' current credit ratings. Strengthened capital adequacy would also help to shore up credit profiles in the face of an anticipated hike in bad debts upon the expiry of the regulator's loan relief," the ratings agency says.
 
Accordig to Fitch, NBFIs with competitive advantages and stronger franchises—mainly the sector leaders - are better placed to navigate these hurdles. 
 
Fitch-rated entities have reported gradual improvements in loan collections and funding access over the past month with the reopening of the economy. 
 
"Equity issuance may also pick up in the near term as issuers seek to bolster capital positions," the ratings agency says, adding, "A number of NBFIs, such as Shriram Transport Finance Co Ltd, Mahindra & Mahindra Financial Services Ltd, L&T Finance Holdings and HDFC Ltd have announced equity issuance plans in recent weeks."
 
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    COMMENTS

    tillan2k

    3 weeks ago

    for fast recovery put delinquents like DHFL behind bars with druggists and drunkards ..

    renukaviru

    4 weeks ago

    FOR FINANCIAL STABILITY PATH IS ALWAYS LONG LONG--HORSE FOR LONG RACE.
    POINT IS SUSTAINABLE MANAGEMENT SUPPORT AND TRUSTWORTHY PROMETORS.
    LET US HOPE FOR THE BEST.

    Punjab National Bank reports Rs3,688 cr borrowal fraud by DHFL
    State-run Punjab National Bank (PNB) has reported a borrowal fraud of Rs 3,688.58 crore in the NPA account of the now bankrupt Dewan Housing Finance Ltd (DHFL).
     
    In a regulatory filing, the bank said that it has already made provisions amounting to Rs 1,246.58 crore.
     
    "A fraud of Rs 3,688.58 crore is being reported by the bank to RBI in the accounts of the company (DHFL). Bank has already made provisions amounting to Rs 1,246.58 crore, as per prescribed prudential norms," it said.
     
    Several other banks have already declared DHFL as a fraud account.
     
    Last November, the Reserve Bank of India (RBI) superseded the Board of Directors of the company and appointed an administrator and accordingly, the board powers were vested in the firm's administrator.
     
    Further, the Mumbai-bench of the National Company Law Tribunal (NCLT) at Mumbai commenced the CIRP against the company in December, following an application by the RBI.
     
    The company reportedly has debt of around Rs 97,000 crore and has allegedly siphoned off Rs 31,000 crore from the total bank loans.
     
    Its promoters Kapil Wadhawan and Dheeraj Wadhawan were arrested by the Central Bureau of Investigation in April.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    SBI okays up to Rs 1,760 cr investment in Yes Bank's FPO
    The State Bank of India (SBI), on Wednesday, said that its Executive Committee of Central Board (ECCB) has approved an investment of up to Rs 1,760 crore in the Yes Bank's further public offering (FPO).
     
    The development comes a day after Yes Bank's board approved raising funds through an FPO.
     
    "The executive committee of central board (ECCB) of State Bank of India at its meeting held today on 8th July, 2020 has accorded approval for a maximum investment of up to Rs 1,760 crore in the further public offering (FPO) of Yes Bank Ltd," SBI said in a regulatory filing.
     
    The state run major is already a major shareholder in the restructured bank with 48.21 per cent stake. As of March 31, banks and other financial institutions held 66.94 per cent stake. As part of the rescue plan, Yes Bank had received Rs 10,000 crore of capital infusion from eight banks, led by the SBI.
     
    Yes Bank CEO Prashant Kumar had said that the bank plans to raise Rs 15,000 crore to boost its strength.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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