Commercial loan sanctions by NBFCs

The commercial Loans sanctioned by NBFCs fell 34% y-o-y on an average, as per industry association Finance Industry Development Council (FIDC).

• The non-banking finance companies (NBFCs) continued to face the cash crunch in the September quarter.
• The sanctions in the commercial vehicle (CV) loans segment dropped by as much as 36% year-on-year (y-o-y) during the quarter.
• Other categories of loans also saw a slide in sanctions, with the construction equipment loan segment seeing a 53% fall and property loan sanctions slipping 48%.
• Sanctions by NBFCs fell 34% y-o-y on an average, as per Industry association Finance Industry Development Council (FIDC).
• While NBFCs of all categories have found it difficult to raise money at easier rates from both banks and money markets, a slowdown in auto demand has hit vehicle-financing entities particularly hard in the last few quarters.
  The vice-chairman and managing director, Mahindra & Mahindra Financial Services, informs that the heavy CV segment is under pressure and growth there is unlikely to revive soon.
• Hence it is believed that the commercial vehicle segment will continue to remain under pressure until economic scenario improves.
• Also, the pressure may not ease further till the government release of payment does not happen the contracting segment possibly will remain under pressure.
• In a recent report, Kotak Institutional Equities wrote that even though disbursements typically pick up in Q2, the trends this year were mixed due to a severe slowdown in auto and challenges on the funding front for small players like Magma Fincorp, Shriram City Union Finance and Muthoot Finance.
• It is also pertinent to note that the NBFCs faced multiple challenges in Q2FY20 as a slowdown in vehicle loans reflected a decline in OEM (original equipment manufacturer) sales, funding challenges afflicted smaller players during most part of the quarter and a prolonged monsoon cramped lower business activity which translated to a rise in delinquencies.
• In a report earlier this month, Credit Suisse said that Q2 witnessed the loan growth dropping to demonetisation lows of 6% because of the NBFC lending pull-back, coupled with a slowdown in bank lending.