The disbursement levels of the non-banking financial companies (NBFC), on an average have declined by 50 per cent over the last two months. According to a report by rating agency Crisil, this was due to fact that NBFCs were focused on repaying their maturing short-term obligations to mutual funds (MFs).
“The decline in disbursements 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 disbursements because of a lack of funds: the average monthly disbursements during September and October are estimated to be half of disbursements during August,” the report said.
However, the report adds that despite being a difficult time, NBFCs are much better placed to see it through in terms of business and financial profiles, compared to 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 NBFC stronghold of retail lending,” said Roopa Kudva, managing director and chief executive officer, Crisil.
The report illustrates that there has been an asset liability mismatches in the balance sheets of NBFCs, with more than half of their borrowings have maturities of less than one year, over most of the assets having tenures of about three years.
“Crisil-rated NBFCs’ estimated borrowings from MFs have increased to more than 45 per cent of total borrowing as of September 30, 2008, from 30 per cent as on March 31, 2006. Increasingly facing redemption pressures, MFs are no longer lending to the NBFC sector, and are withdrawing their existing exposures as these mature. The recent measures announced by the Reserve Bank of India (RBI), allowing NBFCs increased access to funding, will indeed ease their debt servicing pressures, but will not address the longer-term issue of business growth,” the report added.
