Liquidity buffer of NBFCs has improved over last year, says Crisil

But the pace of improvement in collection efficiency, the third of the wave of the pandemic, and access to funds need to be closely monitored, rating agency says

Non-banking finance companies (NBFCs) are better placed currently on the liquidity front than they were a year ago, enabling them to service their near debt without much difficulty, despite a fall in collections because of the second wave of Covid-19, rating agency Crisil said in a note.

However, the pace of improvement in collection efficiency, the third of the wave of the pandemic, and access to funds need to be closely monitored.

“Collections have once again been affected in the current fiscal by the second wave. The decline has been more pronounced in May (sequentially) because containment measures in most parts of the country kicked in only in the latter part of April. A gradual lifting of restrictions has resulted in an improvement in collections in June, but to a level still lower than March 2021,” the note added.

An analysis by the rating agency indicated that under scenario-1, where it was assumed that collection in the next quarter would be 70 per cent of what it was in the past couple of quarters, almost 96 per cent of Crisil-rated NBFCs were found to have liquidity cover for three months of debt repayments.

In the second scenario, where it was assumed that collection in the next quarter would be half of what it was in the past few quarters, it was found that almost 95 per cent of the NBFCs rated by the agency would have enough liquidity to cover three months of debt repayments.

According to Crisil, fund-raising through special government schemes, improving collections in the second half of fiscal 2021, and limited disbursements have bolstered the liquidity cover of these NBFCs. Around 45 per cent of funds raised by these entities in Q1FY21 were through schemes such as targeted long-term repo operations and partial credit guarantee. And, NBFCs with not very strong parentage raise around 60 per cent of their debt through these routes.

“...business challenges linked to the pandemic will continue through most of this fiscal. In this milieu, we expect many NBFCs to continue maintaining strong liquidity cover for debt repayments and operating expenses. That would also help them assuage potential investor/lender concerns in the near term”, said Krishnan Sitaraman, Senior Director, Crisil Ratings.