The Indian economy has been\nseverely affected due to coronavirus outbreak. The worst effect has been on the\nmajority of small businesses in comparison to the big companies as large\ncorporates have sufficient profits, contingency funds and a large customer base\nto survive without bearing the negative effect of the lockdown. <\/p>\n\n\n\n
If we talk about small businesses, they have a shortage of funds to survive as their operational cost is higher than their revenue. Thus, by the time this pandemic come to an end, most of them would be in a situation to forcefully wind up. Non-Banking Finance Companies<\/a><\/strong> have also been largely affected due to the coronavirus lockdown in India. Let’s have a look at the Impact of COVID-19 on NBFC<\/a>.<\/p>\n\n\n\n The NBFC Sector is staring at another bout of liquidity challenges due to the side effects of COVID-19. Earlier, there was no clarity on whether the three-month moratorium applies to the loans which NBFCs have taken from the Banks or not.<\/p>\n\n\n\n NBFCs were to repay the loan amount to the banks when their inflows have been effected due to a three-month moratorium period provided by them to their customers on terms loans as advised by Reserve Bank of India<\/strong>[1]<\/strong><\/a><\/sup>.<\/p>\n\n\n\n It means that initially, there was no moratorium period provided to the NBFC and HFC by the Banks, that are availing credits from them like any other borrower and it has been currently observed that in aggregate, NBFCs have Rs 1.75 trillion of debt obligations maturing by them to the banks.<\/p>\n\n\n\n Moratorium becomes important for NBFCs and HFCs mainly\nbecause these lenders, unlike banks, do not have access to systemic sources of\nliquidity and depend significantly upon wholesale funding.<\/p>\n\n\n\n Bank borrowing is a significant source of funding for the shadow banking sector, especially the smaller ones. Apart from that, they borrow money from the debt capital markets via instruments like NCDs and CPs. Of late, many NBFCs have been acquiring overseas through ECBs, given the liquidity challenges they have been encountering in the domestic market<\/a>.<\/p>\n\n\n\n As an impact of coronavirus on NBFCs, Non-banking finance companies are on edge with commercial paper worth ₹1.6 lakh crore and non-convertible debentures worth ₹87,000 crores, which they can redeem to get the inflow and pay the existing credit of the bank. A lot of players will want to conserve liquidity, so we may\nsee top-rated NBFCs in India, raising new money to pay back the old (debt). So,\nthe mid-sized NBFCs will be hit the most because they may have to dip into\ntheir reserves to pay back these liabilities.<\/p>\n\n\n\n The Ministry of Home Affairs, during the extended\nlockdown period, released a circular giving the details of the businesses that\nwill function in the lockdown period.<\/strong><\/p>\n\n\n\n In the first phase of lockdown, the government only enabled\nbanks to work, stating it under essential services. The new order applies to\nall the financial institutions across all states in the country after the\nrequest was made to the government by NBFCs and MFIs to allow them to operate\nsimilar to the banks.<\/strong><\/p>\n\n\n\n On 17th April, 2020, RBI Governor Shaktikanta Das announced that it has been decided to conduct Targeted Long-Term Repo Operations (TLTRO) 2.0 at the policy repo rate for tenures up to three years for a total amount of up to ₹ 50,000 crores, to begin with, in tranches of appropriate sizes. Measures to maintain adequate liquidity in the system by facilitating bank credit flow and ease financial stress would also be taken.<\/p>\n\n\n\nEffects\nof Coronavirus in India on NBFCs<\/h2>\n\n\n\n
Liquidity Issues Faced by NBFCs<\/h3>\n\n\n\n
Steps Available with NBFCs to\nDeal with Coronavirus Liquidity Crunch<\/h2>\n\n\n\n
Small and medium-sized NBFCs have been hit the most then the big NBFC’s.<\/p>\n\n\n\nSolutions Provided by RBI In Terms of Liquidity Issues\nFaced by NBFCs<\/h2>\n\n\n\n
NBFCs Operational during the Lockdown Period<\/h3>\n\n\n\n
RBI’S Targeted Long-Term Repo Operations<\/h3>\n\n\n\n