The second wave of COVID-19 has intensified pressure points for small and mini NBFCs, as they did not benefit from the RBI liquidity measures announced last year, according to a report.
About 5.75 lakh crore of liquidity was released by the Reserve Bank of India (RBI) in the last fiscal year to tackle the COVID-19 pandemic and maintain a soft interest rate regime to mitigate the twin three-year ordeals of a crucial cog in India’s non-banking financial system, Omidyar Network India and Crisil said in a report.
The size has resulted in further differentiation within these non-banks, he said, adding that the cost of borrowing for the larger NBFCs / HFCs has fallen to FY2018 levels. large MFIs (Micro Finance Institutions) also declined by around 100 basis points over the past three fiscal years. But it’s clear that the excess liquidity in the previous fiscal year didn’t make a difference for the smaller NBFC / HFCs and MFIs serving the bottom of the pyramid. On the contrary, small and mini-banks have often been denied (by their lenders) the RBI moratorium on lending, but they have extended the moratorium to their own customers, ” the report notes.
This created a trio of problems for them after the pandemic – a growing mismatch in cash flow, a crunch in credit and higher borrowing costs, he added.
Some small NBFCs have raised resources through expensive channels, which means that the cost of funds has increased even in the past fiscal year for small and mini banks focused on micro, small and medium enterprises (MSMEs). ) and consumer loans, according to the report.
The second wave of COVID-19 has likely intensified the pressure points for small and mini-banks, he said.
The report further states that funding targeted at small non-banks along with the right incentives and downside protection could be a good way to increase liquidity, as most lenders tend to be pro-cyclical. . Second, credit pools could be created during economic recoveries to absorb shocks during crises. Three, instead of one size fits all, policy decisions on loan duration and provisioning requirements should take into account the nuances of each asset class and their experience with the cost of credit, ” he said. -he adds.
(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)