 "Covid-19 wave intensifies pressure points for small, mini non-banks: Report")
The second COVID-19 wave has intensified pressure points for small and mini NBFCs, as they did not get the benefit of the RBI's liquidity measures announced last year, a report said.
About Rs 5.75 lakh crore of liquidity was released by the Reserve Bank of India (RBI) in the past fiscal to fight the COVID-19 pandemic and maintain a soft interest rate regime to mitigate the three-year-long twin ordeals of a crucial cog in the Indian financial system non-banks, Omidyar Network India and Crisil said in a report.
Size has resulted in a further differentiation within these non-banks, it said, adding the cost of borrowings for the larger NBFCs/HFCs fell to fiscal 2018 levels.
"That for large MFIs (Micro Finance Institutions) too declined by about 100 bps over the past three fiscals. But clearly, the surfeit of liquidity last fiscal has not made a difference to the smaller NBFCs/HFCs and MFIs serving the bottom of the pyramid. Rather, small and mini non-banks were often denied (by their lenders) the RBI's moratorium on loans but they extended the moratorium to their own customers," the report noted.
This gave rise to a trifecta of troubles for them post-pandemic - increasing cash flow mismatch, contraction of credit and higher costs of borrowing, it added.
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Some small NBFC raised resources through expensive channels that meant the cost of funds rose even last fiscal for small and mini nonbanks focused on micro, small and medium enterprises (MSMEs) and consumer loans, the report observed.
The second COVID-19 wave has likely intensified the pressure points for small and mini non-banks, it said.
The report further said targeted funding to smaller non-banks along with adequate incentives and downside protection could be good one way to ramp up liquidity given that most lenders tend to be pro-cyclical.
"Two, credit pools could be created during economic upturns to absorb shocks during crises. Three, instead of a one-size-fits-all, policy decisions on loan tenure and provisioning requirement should take into account the nuances of each asset class and their credit cost experience," it added.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
