35,000 cr outflow challenge for NBFCs


September seems to be a favourite month of the year for surfacing of NBFC problems. Even last year, IL&FS and DHFL grabbed the headlines for all the wrong reasons. Historically, most NBFCs have historically had large loan repayments coming up in this month that are rolled over each year and hence did not pose any fresh problems. However, there is close to Rs.35,000 crore worth of NBFC debt that is coming up for repayment and this will have to be completed before the end of the month. The question is whether lenders will be willing to roll over the loans and at what cost?

Normally, the tenure did not matter because these NBFCs could raise fresh loans from the market to repay the old loans and hence it was like a virtual rollover of loans. But post the crisis last year, the rollovers haven't come easy or will happen at a largely unaffordable rate of interest. This pose as a major risk to NBFCs though not so much on the top quality names.  HDFC & LIC Housing finance have adequate access to institutional funding. IIFL and Edelweiss have kept leverage in check.  Those NBFCs with maturity mismatch and no liquid assets will face most issue.

The government has already announced an NBFC rescue package in its Union Budget and that must be extended to the last category of NBFCs. Of course, the FM is right in the sense that there must be a distinction between liquidity risk and solvency risk. At least, where the risk is purely of liquidity, the banks must step in with the required liquidity and the government must give comfort to the banks. When even a small bunch of NBFCs default on repayments, it can create a systemic crisis as their loan books get compromised. The cascade effect must be prevented!

The author may have positions in the stocks as mentioned in the article above, please assume us to be biased. This is not a recommendation to buy or sell securities. This is purely information about the company mentioned. Equity investing contain risks and please consult your financial adviser for any buy and sell securities!


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