'No revenue loss for NBFCs on 3 month moratorium on loan repayments'

The three month moratorium on term loan repayments given by Reserve Bank of India will not result in any revenue loss for lending banks and NBFCs as borrowers opting for deferment will either have to extend their tenure else increase the quantum of EMIs, Emkay has said in its latest report on RBI's decisions on NBFCs.

According to the brokerage, there won't be any blanket offering to end-borrowers to opt for such deferment of payments, but would be available only for the needy ones.

"The borrowers opting for deferment will either have to extend their tenure else increase the quantum of EMIs to compensate for the revenue loss for NBFCs. Thus, technically there won't be any major revenue loss for NBFCs at least till June 2020," it said in its report.

Among the series of steps announced by the RBI in its advanced monetary policy review on Friday, it said that there would be three month moratorium on term-loan repayments, including EMIs till June 30 taken from all financial institutions. It also allowed deferment of interest payment on working capital loan for three months.

Since the deferment is available from banks as well, the NBFCs with elevated share of bank borrowing (CIFC, MMFS, SHTF) may opt for similar deferment from banks, thus relatively safeguarded, the brokerage said.

However, NBFCs with higher share of bond market borrowings (LICHF) could raise incremental money from the LTRO window at the cost of margins. "Our assessment suggests that NBFCs with relatively stronger liability franchise (HDFC, Bajaj Finance) would anyhow be better-placed as their ability to raise funds at lower costs would help margin disruptions," it added.

The research done by the brokerage has found that the current lockdowns have not only impacted credit growth but also overall collection and recovery mechanism for most of financiers as they are being severely impacted mainly by the absence of field staff. This phenomenon is expected to have even more impact during Q1FY20 since lockdowns are expected to be more severe in April 2020.

If the current situation is extended for a few more days, say May 2020 or beyond, the phase of elevated credit costs would remain at least for the next two quarters (H1FY21).

Emkay said that Smaller-ticket loans such as durable loans, micro finance loans and personal loans are at more risk as EMI deferment disturbs the basic financial discipline of repayments which is relatively difficult to normalise. In addition, the trend suggests that credit card recoveries/repayments are better off even now as end-borrower continues to clear their credit card dues as to continue availing liquidity.