NBFC sector conditions fluctuate despite declining borrowing costs

Mumbai, Ta. 15 July 2020, Wednesday

The relief measures announced by the government as a result of COVID-12 will reduce the borrowing costs of the country's non-banking financial companies (NBFCs) but the ongoing slowdown in the economy will continue to be a challenge for NBFCs.

For the second month in a row in June, NBFCs' borrowing costs have come down and the decline has been due to easy liquidity of money in the banking system and not due to trade flexibility. The business environment is still challenging for NBFCs, a report said.

India's economic outlook is uncertain and the financial health of the country's NBFCs is likely to deteriorate further.

NBFCs are at risk of rising bad debts due to the impact of various measures taken by the coronavirus on the country's trade and the loss of millions of jobs.

Moody's Investors warned last month that tensions in the country's NBFCs would be much more serious and deeper than expected. S&P has also recently downgraded the credit scores of some NBFCs due to liquidity risk.

As NBFCs play a major role in India's financial system, it is important to maintain their financial health, the report said.

To support the NBFC sector, the government announced a રી 3 billion virus relief package in May. The Reserve Bank also announced a reduction in the benchmark repurchase rate.