The moratorium impact has varied across the different NBFI business models. Amongst Fitch-rated issuers, IIFL Finance and Shriram Transport Finance Company have had a higher proportion of collections affected by the moratorium than conventional gold lenders, such as Muthoot Finance and Manappuram.
“The moratorium will erode payment discipline and its extension will result in lagged asset-quality problems for NBFIs, particularly when combined with the economic damage from the pandemic and lockdown”.
India's economy is expected to contract by five per cent in the financial year ending March 2021 (FY21). Asset quality indicators did not show significant deterioration in FY20, but regulatory guidance around impaired-asset recognition indicates that the true extent of the damage may only become visible in FY22. This lack of transparency will complicate the sector's fund raising efforts.
The FY20 results do reveal that many of the sector's largest competitors took proactive provisioning. But whether this was sufficient will depend on the extent of asset-quality deterioration in the coming months. The credit costs are expected to be elevated over the medium-term, Fitch said.
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