The coronavirus (COVID-19) pandemic has spread concern and economic hardship for businesses, consumers and communities across the globe. The 21-day lockdown in India raises several unique challenges for non-banking financial companies (NBFCs). With low-income households and small businesses finding it difficult to service their loans, NBFCs is set to take a significant hit.
No doubt the government and the RBI are introducing liquidity-boosting measures to accelerate the economy reeling under the COVID-19 crisis, it is important for these businesses to know what impact do they have.
Let’s understand the major challenges NBFCs will face amidst this pandemic.
Key Impacts on NFBCs Due to Coronavirus Outbreak
- Low valuation
Due to the slump in the stock market, NBFCs in India have lost approximately 30% to 40% of their value in just last one month.
- Drop in the revenue stream
The decrease in consumer transactions, including loan repayments at all levels across the country has hugely affected the revenue stream of all NBFCs as there are less collection made. This has affected NBFCs’ profitability and their day to day operations.
- Less demand for loans
Small and medium businesses are NBFCs’ major customers. Since these companies are struggling to sustain the business, they are not able to run their operations as usual. This means that it will be difficult for the NBFC sector to meet its asset quality requirements. This also means that there will be less demand for loans, and since SMEs are crucial pillars of the Indian economy, it will create a domino effect, leading to the economic slowdown.
- Hardware shortages
Most NBFCs rely on digital processing of transactions& bills. The hardware needed for digital processing is imported from countries like Korea and China. Since the factories in these countries are not operating, NBFCs may find it difficult to procure the hardware needed.
- New policies may increase vulnerability
The Indian government will take new measures and introduce new policies to mitigate the effects of coronavirus pandemic on the Indian economy. These measures may not be in favour of NBFCs, because of which, their efficiency and profits e NBFCs might take a toll.
- High non-performing assets
There is an increased possibility of NBFCs to create non-performing assets in the future, thus hampering its profit margins.
- Liquidity Crisis
Non-banking financial companies are struggling to raise funds from the capital market due to lack of availability of funds and higher cost. The non-banking companies rely more on banks to meet their funding requirements. Any weakness in bank deposit funding would constrict liquidity available for lending to NBFCs.
NBFCs need to stay prepared with contingency and business continuity plans to bounce back once the coronavirus outbreak slows down. Proper planning is the key to overcome the impact of coronavirus on NBFCs. In response to the economic slowdown and to counterattack its effects, the Indian government and the regulators will take necessary actions and introduce policies to strengthen the position of NBFCs.
The best thing NBFCs can do right now is to make every effort to stabilize the system: give their consumers the confidence, and the capital they need at a reduced interest rate.
Author | Emily Forbes
An Entrepreneur, Mother & A passionate tech writer in the technology industry!