Non-banking financial companies (NBFCs) and housing finance companies (HFCs) are maintaining adequate liquidity buffer to manage any mismatches in their asset-liability maturity (ALM) profiles, rating agency Crisil said Friday.
The business fundamentals of non-banks including growth potential, asset quality and capitalisation, still look solid, the agency said in its report.
"The liquidity position of the large non-banks - both NBFCs and HFCs shows that they are maintaining adequate liquidity buffer to manage mismatches, if any, in their ALM profiles," the report said.
Over the past few months, a number of non-banks have been looking to maintain additional liquidity in the form of cash and equivalents compared with the past.
Liquidity back-up in the form of cash and equivalents is the best option in an uncertain market since it can be tapped on demand.
"In an environment where access to funding has become a function of market confidence, the quantum and quality of such liquidity cushion will be the key differentiator," said Krishnan Sitaraman, senior director, Crisil.
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Commercial papers (CPs) have become an attractive short-term funding source over time because of attractive pricing and greater acceptability.
Between March 2016 and March 2018, the share of CP borrowings in the resource mix of NBFCs increased 500 basis points to 15 per cent, or more than twice 2014 levels; and the share of CP borrowings by HFCs was 10 per cent as of March 2018 versus 8 per cent in March 2016, according to the report.
Crisil said it is important for NBFCs and HFCs to maintain adequate liquidity cushion to offset the potential risk in CPs, which emanates from high dependence on rollovers and refinancing on maturity.
The ability to do so is very sensitive to the confidence levels in the market especially amongst investors like mutual funds, it said.