Disbursement by non-banking finance companies (NBFCs) has declined by 50 per cent over the last two months, according to a report by rating agency Crisil. The rating agency cites NBFCs’ focus on repaying their maturing short-term debt to mutual funds (MFs) as the reason for the drop in business volumes.
“The decline in disbursement was as high as 70 per cent in one case, with the average at around 50 per cent for Crisil-rated NBFCs, pointing to the severity of the business shrinkage. Especially asset finance companies have significantly slowed down disbursement because of a lack of funds. The average monthly disbursement during September and October are estimated to be half of disbursement during August,” the report said.
The report added that despite being a difficult time, NBFCs were much better placed in terms of business and financial profiles compared with what they were during the crisis of the late 1990s.
“Despite increased delinquencies in NBFC portfolios, cash flows from existing assets will allow maturing debt obligations to be met on time. However, the decline in business volume will mean a further marginalisation of the sector, a trend that has been accelerating over the past few years as banks have taken over the traditional NBFCs’ stronghold of retail lending,” said Crisil Managing Director and Chief Executive Officer Roopa Kudva.
The report illustrates that there has been an asset-liability mismatch in the balance sheets of NBFCs, with more than half of their borrowings having maturities of less than one year over most of the assets having tenures of about three years.