Double whammy for NBFCs amid pandemic

The non-banking finance companies (NBFCs) across the country are stuck in a hard time as they face the twin challenges of debt repayment and cash shortage. They are on the edge with commercial paper worth ₹1.6 lakh crore and nonconvertible debentures (NCDs) worth ₹87,000 crore. While on the one hand the cash flows of NBFCs are dwindling, on the other hand they have the task of extending credit.

The disruption caused by the Covid-19 outbreak has put small and medium-sized NBFCs at risk. Large lenders, however, will be able to tap RBI’s ₹1 lakh crore targeted longer term refinancing operations (TLTRO) window but others are likely to face a crunch. TLTRO is a process under which the central bank conducts auctions of term repos of up to three years’ tenure for a maximum ₹1 lakh crore at a floating rate linked to the policy repo rate.

“A lot of players will want to conserve liquidity, so we may see top-rated ones raising new money to pay back old (debt). So obviously, the mid-sized ones will be the biggest hit because they may have to dip into reserves to pay back these liabilities,” Nachiket Naik, head, corporate lending, Kirloskar Capital, told reporters.