Although the 40bps cut in policy rate cut will support margins, especially for better NBFCs, the extension of the moratorium will be bigger trouble for large ones.
The Reserve Bank of India (RBI) on May 22 decided to permit lending institutions to extend the moratorium on term-loan repayments by another three months to August 31, 2020.
On March 27, the central bank has permitted all commercial banks, co-operative banks, all-India financial institutions, and NBFCs, including housing finance companies and micro-finance institutions, to put on hold for three months payment of instalments of all term loans outstanding as on March 1, 2020.
The RBI’s decision to extend the moratorium to August 31 could turn out to be a major negative for non-banking financial companies (NBFCs), Emkay Global has said in a note.
The note highlighted that there was no clarity yet over the moratorium extension for NBFCs from banks. “Most of the large NBFCs stayed away from opting for a moratorium; however, we think they also need to change stance over this. Hence, confusion multiplies now,” it said.
Another worry remains over lack of clarity over asset reclassification standstill which expires on May 31. “In the absence of an extension, we would see a large chunk of NPA additions, along with sizeable increase in provision requirement for all lenders,” it said.
Although the 40bps cut in policy rate cut would support margins, especially for better NBFCs, further moratorium extension would be bigger trouble for large ones.
“We have been reiterating that housing finance companies (HFCs) are better placed in comparison with asset finance companies (AFCs). However, near-term pressure for all is inevitable. Bajaj Finance, Cholamandalam Investment & Finance Company, and M&M Financial Services could be a little more vulnerable now,” said the Emkay Global note.
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Check our complete coverage on RBI's May 22 announcements here