According to CRISIL, the challenging global economic scenario along with recession in the international market will lead to a rise in the non-performing assets, both in the case of NBFCs and housing finance firms. As per the report, the NPAs of these financial institutions will observe a further spike by 30 - 150 bps (basis points) by March 2020 on top of 20 – 150 bps rise earlier in 2020.
The probable reasons:
16% of the total assets under management of NBFC are real estate and structured credits. Business units in this segment are experiencing an extreme recession and are facing issues related to liquidity and financial flexibility.
A good number of loan books are facing stagnation. Non-payment of the dues and loan default accelerates the problem
NPA in the structured debt shot up to 3.3 % from 1.8% in the last six months of 2019. And this trend continues.
NBFCs real estate sector has come under the bad debt ratio of 10+% since September 2019, which is around three times the reported NPAs.
A downfall in refinances in this segment has further worsened the situation.
NPA of NBFC has a significant portion of the loan against residential property and interest accumulated on this loan.
The probable ways-out:
A new source of funding
Incentives on timely repayments
Reducing interest rates
Follow-up and strict eligibility criteria
Collateral, guarantor or legal awareness
CRISIL warning of a spike in NBFC and housing finance. NPA needs instant and prompt remedial measures.
