As part of the Rs 20.97 lakh crore 'Aatmanirbhar Bharat' package, the government has been taking several measures to improve liquidity among the stressed NBFCs and HFCs. Just last month, it cleared 15 proposals worth Rs 6,399 crore allowing primary and secondary market purchases of debt to address the short term liquidity issues of non-banking financial companies (NBFCs) and housing finance companies (HFCs).
While such liquidity measures may help the stressed NBFC and HFC sector, a lot more needs to be done given the challenges faced by them not only due to COVID, but also those lingering from the pre-COVID times. To get the sector out of this crisis, there needs to be a coordinated effort from the RBI, the government and other stakeholders, feel experts.
According to Ashwin Ramakrishnan, Sector Lead, Financial Services, Business Research and Advisory, Aranca, a big challenge facing NBFCs in the current scenario is that the major chunk of their loan books has been in moratorium.
“While there seems to be some improvement since June when the lockdown was eased, NBFCs are under immense pressure due to collection issues and will most likely need to restructure their loan books. While additional liquidity support measures are welcome, a lot more needs to be done,” he said.
Ramakrishnan added that while COVID made things worse for the stressed NBFCs and HFCs, they were already struggling even before the pandemic.
“I think it is important to realise that right before the pandemic struck a lot of these firms were already highly stressed due to a series of defaults in 2018 and 2019. The current crisis has aggravated their situation. We can expect an increase in NPAs in the next few months as well,” he explained.
He said that the RBI, the government, and other stakeholders need to work together to support these firms, either through more liquidity or other policy measures.
The Special Liquidity Scheme (SLS) of Rs 30,000 crore was announced as a part of the “Aatmanirbhar Bharat” package with an aim to improve the liquidity position of NBFCs and HFCs. Under the scheme, the government will provide an unconditional and irrevocable guarantee to the special securities issued by the Trust.
Any NBFC, including microfinance institutions registered with RBI under the RBI Act, 1934 (excluding those registered as Core Investment Companies) and any HFC registered with the National Housing Bank under the National Housing Bank Act, 1987 which is complying with certain specified conditions, are eligible to raise funding from this facility.
NBFCs and HFCs came under stress following a series of defaults by IL&FS group firms in September 2018.