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COVID-19: Second wave will have minor impact on NBFCs; pent-up demand to help attain normalcy

Even if there is some delay of a month or two (in repayment), it will not sustain as the pent-up demand will take care of the business and collections. So, I don't see a big risk for NPAs, Umesh Revankar said

Revankar said a restructuring option by the Reserve Bank of India (RBI) for stressed accounts can help NBFCs rework customers' loan repayment Revankar said a restructuring option by the Reserve Bank of India (RBI) for stressed accounts can help NBFCs rework customers' loan repayment

Though the disruption in economic activities due to the second wave of COVID-19 may impact non-banking financial companies (NBFCs), the sector will attain normalcy soon, helped by the 'pent-up' demand, say industry players. Amid rising coronavirus cases in the country, some of the states, including Maharashtra, Karnataka have put strict restrictions on movements.

According to Shriram Transport Finance managing director and CEO Umesh Revankar, the non-bank lenders may see some temporary delay in loan repayments by borrowers in April or May as customers will like to preserve cash but that will not lead to a very significant jump in non-performing assets (NPAs).

"Even if there is some delay of a month or two (in repayment), it will not sustain as the pent-up demand will take care of the business and collections. So, I don't see a big risk for NPAs," Revankar said at a webinar organised by Care Ratings.

He said sectors such as infrastructure, real estate and consumer spending are seeing huge demand and it will help the NBFCs to recover soon.

Compared to last year when there was a national lockdown and movements were completely restricted for 30 days, business activity is happening this year despite restrictions, he said.

He sees some lesser collections for the sector during April and May but it would not affect the entire first quarter.

Revankar said a restructuring option by the Reserve Bank of India (RBI) for stressed accounts can help NBFCs rework customers' loan repayment.

"We can give him (borrowers) a smaller EMI option for some time and then increase the amount later. We can also readjust our books accordingly," he said.

On Tuesday, the Finance Industry Development Council (FIDC), an industry body of NBFCs, had written to RBI seeking restructuring of stressed retail and individual borrowers of shadow banking players, irrespective of whether these loans have been restructured earlier.

Aadhar Housing Finance managing director and CEO D S Tripathi expects the impact on economic activities till May and from June onwards the sector will again start seeing traction.

"This year, the growth will be seen only in the nine months and not in the first three months. But growth will happen," he said.

He said credit cost for NBFCs may go up by 1.5-1.75 times in June and September 2021, but for the year (FY2022) as a whole, it will be 5-10 basis points higher than in FY21.

Non-banking financial company-microfinance institution (NBFC-MFI) CreditAccess Grameen managing director and CEO Udaya Kumar said while the situation due to the second wave is very devastating in some of the places, the MFI industry in the last one year has learnt to navigate this kind of situation and also the intermittent or full lockdowns.

"The comeback of the MFI sector is due to the resilience of the rural customer, particularly of the low-income household. Though these customers are poor, they are very resilient and have strong commitment," he said.

He said this year many states have categorised MFIs as part of essential services and allowed them to operate amid restrictions.

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