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Dual Challenges faced by NBFCs: Debt Repayment & Cash Shortage

Dual Challenges faced by NBFCs: Debt Repayment & Cash Shortage

Since the IL&FS default case, NBFCs (Non-Banking Finance Companies) are facing an acute shortage of funds and cash flow due to a consistent surge in NPAs (Non-Performing Assets) over the years. With persistent hope to bring revival and able to address cash crunch issues, the central bank has announced a fund to the tune of INR 1 lakh crore of TLTRO (Targeted Longer-Term Refinancing Operations).

Amidst COVID-19 pandemic, NBFCs businesses received a setback again due to lockdown. The NBFCs were coming to terms after suffering a lot due to slowing economy, subdued demand, acute dearth of funding and cash flows. Currently, NBFCs companies are on the verge of collapse, with commercial paper worth INR 1.6 lakh crore and non-convertible debentures (NCDs) worth INR 87,000 crore is going to mature by June’2020.

According to Acuité Ratings & Research Report, the combined debt repayment along with interest for top 11 NBFCs in the coming June quarter is estimated at INR 40,000 – INR 60,000 crore, whereas cash reserves were gauged at INR 45,000 and refinancing needed to the tune of INR 10,000 – INR 20,000 crore.

The recent announcement of INR 1 lakh crore TLTRO by RBI (Reserve Bank of India) can serve as a breather for large NBFCs who are most likely to be benefitted from it, while others are likely to face a cash crunch. On the other hand, small and medium-sized NBFCs are at risk of disruption caused by coronavirus pandemic.

The funds accorded under the TLTRO window will have to be mobilized in investment-grade corporate bonds and commercial papers.

To counter the severity in NBFCs business due to COVID-19 outbreak, companies have appealed to RBI to direct banks to extend the benefit of the three-month moratorium. Time will tell whether the NBFCs can paint a better future for themselves or slip into oblivion.

 

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