NBFCs may rejig businesses as loan disbursements fall

Mumbai: NBFC disbursements slowed for the first time in more than a decade when a credit crunch, in the immediate aftermath of the Lehman Brothers collapse, triggered a global liquidity crisis.

The decline could help them readjust business models now shaped by new financing-cost realities, but pockets of India’s consumption economy could contract in the bargain.

Housing finance companies saw pressure from the developer portfolio, vehicle finance companies were affected by the slowing auto sales and consumer finance were hit by liquidity pressure during the March quarter.

Shriram Transport Finance

, PNB Housing Finance and

LIC Housing

saw disbursement growth decline and margins contract due to the rising cost of funds.

PNB Housing Finance saw disbursements come down by 8% quarter on quarter, largely due to the scale back in the lease rental discounting segment.

“The liquidity crisis, coupled with the increasing stress in the corporate segment, warrants caution,” Piran Engineer, an analyst at Motilal Oswal, said. “With asset leverage already at 11x and a cautious outlook in the underlying business, disbursement growth is likely to remain moderate over the near-to-medium term.”

Disbursements at Shriram Transport Finance declined by 21% on-year as the new vehicle loan book growth continued to shrink on slowdown in activity and uncertainty around elections. The company had to adjust disbursements affected by tight liquidity and weakening the demand in the commercial vehicle segment.

“Last financial year was a challenging year with tight liquidity, which impacted the overall Indian financial and real estate sectors,” said Sanjaya Gupta, managing director, PNB Housing Finance. “We will continue to maintain a balanced approach to business with focus on asset quality and improving profitability.”

LIC Housing Finance, which saw its asset quality deteriorate, reported a 10% decline in its builder loan portfolio, although overall disbursement growth was 10% on-year. The gross non-performing loan (GNPL) ratio increased by 27 bps to 1.53%. “After the liquidity crisis in 2018, parentage and credit ratings have become of paramount importance for NBFCs and housing finance companies,” said Alpesh Mehta, analyst at Motilal Oswal. Defaults at IL&FS affected liquidity.

NBFCs relied largely on bank funding in the form of term loans and portfolio sell-downs to generate liquidity. This can come at a higher cost, eating into the margins.

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