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Krishnan Sitaraman, Senior Director, Crisil Ratings
Nov 25, 2016 | Source: CNBC TV18
The short-term impact will be felt by those companies that are cash intensive – the likes of business catering to used commercial vehicle financing, gold financing entities and micro-financing companies. However, he said Crisil rated NBFCs will be able to manage the impact because of liquid assets on their balance sheet. This disruption will likely get over in a month or two, but if it is prolonged over three months then asset quality challenges could arise for them, too.
NBFC space over the last few years has structurally strengthened both from business diversity and finance raising ability point of view. Over the last 4 years NBFC share of credit pie in the Indian financial system has gone up from 12 to 15 percent and over next three years will move to 18 percent.
We have done two types of analysis one on the securitised pool of transaction which some of these NBFCs have originated and that is something which is a closed structure which typically will not benefit from any outside support. So, that is something which is more vulnerable if things pan out in the same current situation over a long period of time.
What we have done is applied a severe stress on the securitised transactions that we have rated and we have seen that even if there is considerable fall in collections over the next two months the existing credit enhancements in those structures like over collateralisation and external cash collateral that will be able to support the investor payouts over the next two months. If the disruption in collection extends for a period of over two months that is when these securitised transactions or some of those in the asset classes which I talked about earlier they could come under stress and we will need to evaluate more closely at that point of time.
If you move towards overall balance sheets or balance sheet based borrowings which NBFCs have taken there they have more stability I would say in the fact that they have access to undrawn bank lines. So, if there is a issue to a short-term liquidity stress they can always borrow from a banks and they can also liquidate. They have liquid assets on their balance sheet that can be liquidated if need be. .
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FIIs
Demonetisation
NBFCs' asset quality