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RBI study: Liquidity pressures may remain elevated for NBFCs

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Market financing conditions for non-banking financial companies (NBFCs) have shown signs of deterioration post the outbreak of COVID-19, a study released by RBI showed.

RBI study: Liquidity pressures may remain elevated for NBFCs
Market financing conditions for non-banking financial companies (NBFCs) have shown signs of deterioration post the outbreak of COVID-19, a study released by RBI showed. This was especially for lower rated and private sector NBFCs, it said.
The study showed that Rs 1.08 lakh crore of total outstanding market borrowings of NBFcs are expected to mature within the next three months. "To a certain extent, these could be bridged through increased bank borrowing and / or group support by some NBFCs. However, given the current financing conditions and developments in the mutual fund sector, the possibility of liquidity pressures remaining elevated for some of these NBFCs, especially those with high dependencies on market borrowing, cannot be ruled out," it noted.
RBI said that while its measures have had a salutary impact on financial markets, stress is still visible in certain areas of the market. "The emerging developments indicate the need for policy interventions, which go beyond liquidity related measures to credit related ones," the central bank said in this study.
The analysis is restricted to NBFCs’ market liabilities and does not factor in the impact of their bank borrowings, given that bank credit to NBFCs increased by a robust 29 percent during 2018-19 and by 26 percent during 2019-2020, RBI said.
Market Borrowings by Top 100 NBFCs
As on April 30, 2020, outstanding market borrowings for top 100 NBFCs, through CPs and bonds (both onshore and offshore), stood at around Rs 12.6 lakh crore, marginally higher than Rs 12.5 lakh crore a year before.
Monthly market borrowings remained in the range of Rs 60,000 crore to Rs 1 lakh crore, RBI data showed. In April 2020, however, such borrowings fell to less than Rs 33,000 crore, reflecting the overall turn in macro environment.
The March quarter of FY20 saw increased offshore borrowing. The share of foreign currency bonds issued by NBFCs in their total outstanding market liabilities therefore increased even as the share of CPs has reduced. The share of outstanding corporate bonds remained largely unchanged, RBI said.
Outstanding Market Liabilities of Top 100 NBFCs
Rs 1.08 lakh crore (or close to 9 percent of total outstanding market borrowings) is expected to mature within the next three months, going by the data as of April 30, 2020. Another Rs 1.6 lakh crore (or 13.4 percent of total outstanding market borrowings) will become due for repayment in the following nine months, RBI data showed.
RBI said that some NBFCs could face challenges in rolling over / financing the redemption requirements at competitive rates, given the current financing conditions, and the overall economic environment.
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