Liquidity cover at CRISIL-rated non-banking financial companies (NBFCs) has improved from a year ago, putting them in a better position to service debt in the near-term, and cushioning the impact of lower collections because of the second wave of the Covid-19 pandemic.
"That is a change from last year, when asset-quality and liquidity fears multiplied after a moratorium on repayments and stringent lockdowns affected collections. This time around, the build-up in liquidity has been a crucial offset.
To be sure, collections have once again been affected in the current fiscal by the second wave. The decline has been more pronounced in May (sequentially) because containment measures in most parts of the country kicked in only in the latter part of April. A gradual lifting of restrictions has resulted in an improvement in collections in June; but to a level still lower than March 2021," CRISIL Ratings has said in a release.
Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, "Most CRISIL-rated NBFCs have built significant on-balance-sheet liquidity. This will allow them to manage the impact of the second wave of the pandemic better than the first. Nevertheless, business challenges linked to the pandemic will continue through most of this fiscal. In this milieu, we expect many NBFCs to continue maintaining strong liquidity cover for debt repayments and operating expenses. That would also help them assuage potential investor/lender concerns in the near term."