NBFC Loan Disbursements Fell An Estimated 70-80% In April

Disbursements across most loan products like automobiles, personal loans and even gold loans fell sharply due to restrictions on normal operations, even though the government was clarified that non-bank lenders are exempt from the nationwide lockdown. Still, most lenders had skeletal operations running and demand was absent. The limited disbursements that took place were in the form of existing working capital lines to small businesses and some corporate and real estate loan outgo, the executives who BloombergQuint spoke to said.

The analysis doesn’t include housing financiers.

“In April, offices only began working a week or ten days back as there were issues previously. Further, companies can only work with 33 percent of staff and in the abscence of public transport most staff can’t even get to office,” said Raman Agarwal, co-chairman of Finance Industry Development Council, explaining the near stalling of lending activity by NBFCs.

During the third quarter of the year, NBFCs disbursed a total of Rs 2.01 lakh crore.

Asset and Consumer Financing

A large part of the slowdown was demand driven. For instance, with auto sales stalling, there was no demand for loans for cars and two-wheelers. Demand for credit for other asset purchases such as consumer durables also crumbled.

This took away a large chunk of potential business.

Loans for asset-financing accounted for around 56 percent of overall NBFC loan sanctions in the December-ended quarter, according to the latest FIDC data.

While government NBFCs would have disbursed loans as per their clients’ needs and projects, the SME and retail focused NBFCs would have disbursed very little in April, said Sanjay Agarwal, senior director, Care Ratings.

“There has been very little disbursements from NBFCs since companies have been focused on giving a moratorium to their customers and deciding on how to finance it. Mainly pending disbursements would have taken place last month on existing sanctions for corporate or large SME clients, ” he said.

Umesh Revankar, chief executive officer at Shriram Transport Finance Company Ltd., told BloombergQuint that the sudden stop to economic activity and vehicle sales over the last six weeks has meant that credit growth has been marginal.

“If the lockdown is lifted by the end of May, economic activity can start again, otherwise the pain will be much bigger. We have lost two months in this fiscal. Some demand can come back by September but overall demand will only revive next year,” he said.

AM Karthik, vice-president and sector head financial sector ratings at ICRA Ltd, agreed that demand will remain weak at least for this first quarter. “NBFC disbursements could be down by 80-85 percent in Q1 FY21, across key credit products, since economic activities were crippled because of the lockdown,” he said.

Some Demand For Gold Loans

One category that continued to see some demand is gold loans. Gold loan NBFCs continued to disburse fresh loans during the last month, albeit at a much lower rate than normal.

Most of these disbursements happened online. Online gold loan products make up around 15 to 30 percent of individual AUM (assets under management) for the top three gold-loan NBFCs, according to Karthik. This category saw fresh disbursals in April.

Since close to 40 percent of branches were shut and physical restrictions were placed on movement of customers, footfalls were low and customers were mainly paying installments, a senior executive at a gold loan NBFC told BloombergQuint. However, a number of existing customers with digital gold loan accounts have taken additional credit based on their gold that’s already pledged with the company, this person said on the condition of anonymity.

Given that gold loan demand picks up in times of economic stress, demand for such credit could rise 15-20 percent this year, the person added.

Financing Troubles

NBFCs also continue to face financing troubles.

The incremental funding requirement for NBFCs are largely for refinancing and augmenting liquidity buffers. But this liquidity is mainly chasing the high-quality and larger players, said Karthik.

“There is also uncertainty around banks providing a moratorium to their NBFC clients. While public sector banks have given it and are considering the same, most private banks are not considering this request,” he said. “We haven’t seen any significant fresh funding to mid-sized and small NBFCs, due to overall risk-aversion by lenders.”