Sensex Opens Marginally Up; Telecom & Power Stocks Gain

Moving on to the news from the bank sector. As per the report by ratings agency ICRA, the ongoing issues with the non-bank lenders will crimp the operating profits of such companies by up to 0.5%.

Reportedly, the decline in profitability will be primarily due to an increase in the cost of funds, slowdown in portfolio growth and cost of carrying additional liquidity due to the troubles.

As the going gets tough, all the NBFCs have started building extra liquidity buffers, which will narrow the net interest margins by up to 0.15%, thereby impacting the profitability.

There can also be an impact on asset quality as the small businesses segment, one of the largest customer segments for the NBFCs, will find the going tough, it said, adding the loans against property, commercial vehicle and construction equipment will be the most affected.

It can be noted that the defaults by IL&FS in August last year percolated into concerns on wider NBFC universe.

Companies were dependent on short-term money to fund long-term assets were the ones where the concerns were the highest and witnessed huge corrections in stock prices.

While refusing to help directly, the RBI attributed the stress to troubles on asset-liability mismatch. The mutual fund's segment was one of the primary suppliers of liquidity and have become wary of exposures.

ICRA said the NBFCs have diversified their borrowing to the banking system which has given Rs 700 billion by September alone to support repayment of the maturing borrowings in the October-December period.

It said the growth rate for retail-focused NBFCs will halve to around 12% for the second half of the fiscal, from the 24-25% in the first half, which will take down the overall credit growth to 16-18% for FY19.

Note that, credit growth in NBFCs has seen robust growth in recent years. From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks.

Is the NBFC Party in India Coming to an End?

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Disclosure: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. ...

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