With the outbreak of COVID-19, followed by its disruptions for NBFCs, the funding challenges could mount again (especially for smaller NBFCs), CARE Ratings has stated in a report that tracks report tracks the trend in debt exposure of Banks as well as Mutual Funds to NBFCs.
"The funding challenges for smallr NBFCs could mount again, as banks become more selective in extending credit owing to the risk aversion leading to tighter liquidity concerns. Additionally, the external commercial borrowings (ECBs) registrations in financial services declined to USD 0.16bn, (22.7% of total ECBs registrations) in April 2020 as compared to USD 1.3bn (47.1% of total ECBs registration) in April 2019 given the challenging circumstances in the global market. NBFCs have received liquidity headroom due to the announcement of the Special Liquidity facility and modification of the partial guarantee scheme," CARE Ratings has stated in its report.
According to the ratings agency, the extended partial credit guarantee scheme (PCGS) would incentivise public sector banks to take additional exposure to NBFC sector.
"Temporary increase in group exposure limits from 25% to 30% will enable larger business groups to seek additional funding from banking system. However, given how the pandemic has affected the macroeconomic growth in the country, along with the suspension of the IBC for six months, the RBI could look into issuing a one-time restructuring scheme for enterprises which are facing deeper stress due to the changing nature of the economic conditions," CARE Ratings has said in its report.