Funding challenges could mount again for NBFCs, especially the smaller ones, in the aftermath of the disruption caused by the Covid-19 pandemic as banks become selective is taking exposures, says CARE Ratings.
The rating agency said banks are becoming more circumspect in extending credit owing to risk aversion leading to tighter liquidity concerns.
The outstanding bank lending to NBFCs declined marginally to Rs 8.04 trillion in May 2020 from Rs 8.12 trillion in April 2020, according to Reserve Bank of India data.
NBFC borrowings from mutual funds rose to Rs 1.45 trillion in May 20 from Rs 1.34 trillion in April 2020.
In the short- to medium-term, the ability of individual NBFC to raise resources and ramp up collection efforts amid the gradual lifting of the lockdown would be critical from the liquidity point of view, CARE said in review of the funding pattern.
The overall funding environment for the sector seems to have improved somewhat given a high level of liquidity in the banking system and the decline in yields following the RBI rate cuts.
The various fund raising channels put in place by the government and reserve Bank of India has also improved funding conditions. Some of the financing arrangements include, Targeted Long Term Repo Operations (LTRO), Extended Partial Guarantee Scheme (for on-balance sheet lending as well as for asset pool purchase). This, coupled with expectations of improving collections, would aid the overall liquidity position of the NBFC sector.