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End of mandatory repayment exemptions for infra cos to hurt NBFCs with exposure

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Mumbai: NBFCs giving loans to real-estate companies may come under pressure in the first half of next year when about Rs 70,000 crore worth of advances to infrastructure developers would no longer enjoy mandatory repayment exemptions. India Ratings said on Monday that with refinancing options looking bleak for these developer companies due to high costs of fund and liquidity tightness, some of these exposures may turn delinquent.

The Fitch group’s Indian rating agency on Monday downgraded its mid-year outlook for NBFC sector to ‘negative’ from ‘stable’. “About 65-70% of the loan book that NBFCs have is still under moratorium where interest payment is happening and principle payment will start from first half of the next fiscal year.

Delinquencies may increase on a case to case basis,” said Pankaj Naik, associate director, India Ratings and Research.

“The pace at which refinancing was happening has come down.

Not many players are optimistic in taking fresh exposure in real estate space, which will lead to increase in credit costs.” This may put additional stress on wholesale NBFCs and Housing Finance Companies (HFCs) catering to the segment, with potential defaults deteriorating solvency of many such non-banks already reeling under high costs of acquiring credit, the analyst said. As per data shared by the rating agency, about 40% of all real estate outstanding loans are with nonbanks.

The major ones include L-T Finance, Piramal Housing, JM Financial and Altico. With expensive refinancing options, many of the infrastructure developers may be forced to make asset sales and opt for other restructuring options to meet repayment obligations, according to India Ratings. A moratorium period is the time during the loan term when the borrower is not required to make any repayment.

This is mostly done to help correct the asset liability mismatch for working capital on which investments may take longer to show returns. Separately, India Ratings also cut the growth forecast for NBFCs for FY20 to 10-12% from 15% in FY19 in view of funding challenges and slowdown in economic activity. “With the funding tightness being accompanied by possible asset-side headwinds considering slowing demand, NBFCs have been grappling with a double whammy,” said India Ratings.

“During this period, NBFCs also had to increasingly rely on alternative measures to generate liquidity, including through asset sales - securitization and direct assignments of loans.” Within asset classes, Ind-Ra has maintained a stable-to-negative outlook on commercial vehicle loans as the automobile sector continued to endure its worst sales slump in over two decades.

It also downgraded the outlook for the loans against property (LAP) segment.




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Category: Stock Market


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