On March 27, 2020, the RBI permitted all “lending institutions”

including commercial banks, co-operative banks, All-India Financial

Institutions, and NBFCs (including housing finance companies and

micro-finance institutions) to allow a moratorium of three months

(from March 1, 2020 to May 31, 2020) on the payment of instalments in

respect of all term loans to their borrowers. With the extension of the

lockdown and continuing disruptions on account of COVID-19, the RBI

has further permitted the lending institutions to extend the

moratorium on term loan instalments by another three months, i.e.,

from June 1, 2020 to August 31, 2020. As a result of this, many NBFCs

and HFCs extended moratorium to their borrowers. It is expected that

due to low collections, the liquidity buffers of these NBFCs may contract

if they are unable to arrange for fresh funding or avail similar

moratorium from their lenders. This study highlights the manner in

which moratorium was extended by NBFCs, preliminary trend in

collections across the NBFCs/HFCs rated by CARE as ‘CARE A-’ and

above, and the latest position with regards to the liquidity coverage

available on the balance sheets in the form of cash & liquid investments

to cover for next 3 to 12 months’ debt repayments.

Moratorium Policy Adopted The chart below highlights the type of policy adopted by NBFCs rated

by CARE for extending moratorium to their borrowers.

Fig-1: Moratorium Policy Adopted by CARE-rated NBFCs/HFCs

Source: CARE Ratings

* Overall sample consists of 92 NBFCs/HFCs rated ‘CARE A-’ and above

16%

3%

5%

7%

63%

69%

68%

67%

21%

28%

27%

26%

0% 20% 40% 60% 80% 100%

AAA

AA Band

A Band

Overall (92 NBFCs)

No Moratorium Given Opt-In Option Opt-out Option

June 30, 2020 I BFSI Research June 30, 2020 I Ratings NBFCs: Preliminary Trends

During Moratorium

Contact: Sanjay Agarwal Senior Director sanjay.agarwal@careratings.com +91-22-6754 3582

Mitul Budhbhatti, CFA, FRM Associate Director mitul.budhbhatti@careratings.com +91-97250 40966

Mradul Mishra (Media Contact) mradul.mishra@careratings.com +91-22-6837 4424

Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report

BFSI Research

2

As highlighted above, majority of the NBFCs (about 67%) adopted a ‘Opt-In’ policy, whereby the borrowers were given the

option to avail moratorium by putting in a request to the NBFC. About 26% of the NBFCs gave moratorium as a default

option, where the borrowers wishing to continue payments were asked to put in a request to the NBFC. About 7% of the

sampled 92 NBFCs did not give any moratorium to their borrowers. These were primarily wholesale NBFCs backed by the

Government of India (GoI).

Fig-2: Moratorium Policy Adopted by NBFC type

Source: CARE Ratings

Given that the moratorium announcement by RBI was towards the end of the month of March 2020, most of the payments

for March 2020 had been received by the NBFCs. Hence, this analysis focuses on April 2020.

Retail NBFCs majorly opted for the ‘Opt-In’ option, whereas MFIs largely chose the ‘Opt-out’ options, thereby providing the

moratorium to its borrowers as a default option. The median collections for the month of April 2020 across the sample

classified based on the type of moratorium policy adopted is highlighted below.

Fig-3: Collections for April 2020 & Moratorium Policy Adopted

Source: CARE Ratings

6%

19%

80%

62%

70%

22%

14%

19%

30%

78%

0% 20% 40% 60% 80% 100%

Retail NBFC

Wholesale NBFC

HFC

MFI

No Moratorium Given Opt-In Option Opt-out Option

100%

50% 41%

N O M O R A T O R I U M G I V E N O P T - I N O P T I O N O P T - O U T O P T I O N

Median Collection %

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As expected, the median collection percentage for the ‘Opt-In’ option is higher compared to the ‘Opt-out’ option which

provides moratorium to all borrowers by default. The collection percentage is calculated as actual collections for the month

vis-à-vis the original scheduled repayments due for the month without factoring in the extent of moratorium provided.

Collection Trends for April 2020 based on rating category and NBFC type

For the month of April 2020, which was the second month of the initial moratorium, the drop in collections was expected

across the board with varying degrees of collections based on borrower segments and asset classes. For CARE-rated NBFCs,

the median and minimum collection percentage observed for the sample is shown in the table below.

Table-1: Collection Trend based on Rating Category

Rating Category No. of

Entities

Collection % for April 2020

Median Min

AAA 17 59% 26%

AA 30 50% 10%

A 34 43% 1%

Overall Sample 81 50% 1%

Source: CARE Ratings

As seen from the table above, the median collection percentage for the entire sample was at 50% with minimum being a

miniscule 1%. ‘CARE AAA’ rated NBFCs registered better median collections primarily driven by greater proportion of

entities not extending moratorium, large HFCs reporting robust collections and wholesale NBFCs backed by GoI or large

conglomerates reporting relatively better collections. Median collection percentage was lower for A-rated NBFCs, as this

sample consisted of Microfinance companies, which during April 2020, reported the lowest collections across all categories

of NBFCs. The minimum collection percentage in the ‘AAA’ and ‘AA’ categories were reported by consumer retail &

commercial vehicle focussed NBFCs.

The chart below depicts the collection trend based on NBFC type, viz., Retail, HFC, MFI, Wholesale.

Fig-4: Collections for April 2020 based on NBFC type

Source: CARE Ratings

* Figures in bracket indicate number of entities in the sample

Retail NBFCs and HFCs reported median collections close to the overall sample median at around 50%. MFIs witnessed

lower collections as ground level activities remained severely restricted during the month and collections mostly not being

51%

64%

50%

3%

Retail NBFC (31)

Wholesale NBFC (17)

HFC (24)

MFI (9)

M E D I A N C O L L E C T I O N % F O R A P R I L 2 0 2 0

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digitalised. These MFIs needed to provide moratorium to all its borrowers as a default choice. Wholesale NBFCs appear to

report a higher collection percentage as many of them have not extended moratorium. Also, for some of these NBFCs,

given the back-ended nature of their loans (especially Real Estate loans), the scheduled repayment does not fall due for a

substantial part of their portfolio resulting in a higher collection percentage. Some wholesale NBFCs have witnessed pre-

payments in idiosyncratic transactions as well, resulting in a gross collection percentage of over 100%.

In case of Retail NBFCs, CV financiers and consumer financiers focussing on non-salaried/unsecured segments have

reported collections lower than the median, whereas education loans (mainly for overseas students), gold loans and some

segments of loans in the secured/salaried individual categories have reported collections better than the median.

In case of HFCs, a few HFCs focussing on the affordable segment with lower ticket-sizes have reported lower-than-median

(less than 40%) collections, whereas HFCs focussing of the prime/salaried segment and some affordable housing financiers

have reported relatively robust collections of over 60% despite extending moratorium to their borrowers.

Liquidity Cover of NBFCs

Given the drop in collections, many NBFCs have approached their lenders to avail moratorium on their borrowings so as to

provide liquidity relief. However, many NBFCs with healthy liquidity buffers and low leverage have opted not to approach

their lenders for relief and instead focus on fund raising, including through various schemes announced by the government

to channel liquidity to the sector, viz., TLTRO, Partial Guarantee Scheme, Refinancing Scheme, etc. The chart below shows

the rating category-wise proportion of entities approaching lenders for moratorium on its borrowings. These figures

pertain to the first phase of moratorium. With the moratorium extended once more, we understand that some more

players are likely to approach lenders (mainly bankers) for moratorium for the next three months.

Fig-5: NBFCs Approaching Lenders for Moratorium (Rating-wise)

Source: CARE Ratings

* Figures in bracket indicate number of entities in the sample

As highlighted above, none of the ‘CARE AAA’ rated NBFCs have approached their lenders with a request to provide

moratorium. These are strong NBFCs, largely backed by strong corporate group/fund or GoI. These entities are having good

access to the market and have demonstrated fund raising during these challenging times. As one goes down the rating

100%

70%

62%

73%

22%

26%

19%

8%

13%

8%

A A A ( 2 0 )

A A ( 3 7 )

A ( 3 9 )

O V E R A L L S A M P L E ( 9 6 )

Not Approached Approached Some Lenders Approached All Lenders

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scale, more number of entities are approaching their lenders to seek relief so as to avoid cash flow mismatches and

preserve their liquidity buffers. The same behaviour based on the type of NBFC is depicted below.

Fig-6: NBFCs Approaching Lenders for Moratorium (NBFC Type)

Source: CARE Ratings

* Figures in bracket indicate number of entities in the sample

Based on NBFC type, over 80% of the HFCs have not approached their lenders for any relief as they are supported by

relatively robust collections under moratorium and improved ALM profiles and liquidity buffers post September 2018 crisis.

Furthermore, many small/mid-sized HFCs are highly capitalized with high liquidity buffers aiding them in the current

scenario. Only a small proportion of MFIs in the sample have not approached the lenders with the driving factor being

support for an established corporate group. Majority of MFIs have approached all or some lenders for relief given the

meagre collections during moratorium, uncertainty in cash flows post lockdown and constrained access to fresh funding in

the early stages of moratorium. Wholesale NBFCs approaching lenders for relief are primarily real estate focused or lending

to other small NBFCs/MFIs. It is pertinent to note that while the large NBFCs have had relatively better access to funding,

small and mid-sized NBFCs & MFIs have generally found it tough to raise funds during these challenging times. Further,

securitization which emerged as a major funding avenue for NBFCs post September 2018 liquidity crisis, has taken a

backseat given the uncertainty in collections and likelihood of deteriorating asset quality keeping the investors at bay.

The liquidity covers of NBFCs will be dependent on collections and the ability to raise resources during these challenging

times. On account of the September 2018 liquidity crisis, most NBFCs were in a better shape at the beginning of April 2020

as compared with September 2018 with regard to leverage and liquidity. The on-balance sheet liquidity cover for

repayment obligations over the next 12 months (i.e., April 2020 to March 2021) for the sample entities is given below.

75%

77%

81%

22%

19%

18%

15%

33%

6%

5%

4%

44%

R E T A I L N B F C ( 3 6 )

W H O L E S A L E N B F C ( 2 2 )

H F C ( 2 7 )

M F I ( 9 )

Not Approached Approached Some Lenders Approached All Lenders

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Fig-7: Median Liquidity Cover@

(Rating Category)

Source: CARE Ratings

@

Liquidity Cover (In months) = (Cash+Liquid Investments / 1-Yr Debt Obligations) * 12

Similarly, median liquidity cover based on NBFC type is presented below.

Fig-8: Median Liquidity Cover@

(NBFC type)

Source: CARE Ratings

@

Liquidity Cover (In months) = (Cash+Liquid Investments / 1-Yr Debt Obligations) * 12

While HFCs have the lowest liquidity cover, it is pertinent to note that their collection percentage is also one of the least

impacted. MFIs, however, have a relatively better liquidity cover of over 3 months, but given the low collections, are more

in need of relief. Furthermore, as compared with longer tenor housing loans, MFI loans are of relatively shorter tenure,

resulting in shorter tenure of its liabilities as well. As a result, any disruption in collections puts more pressure on MFI’s

liquidity relative to HFCs, prompting them to seek relief despite well-matched ALMs and adequate liquidity cover

parameter. On the other hand, wholesale NBFCs are sitting of substantial liquidity buffers due to the corrective measures

taken post September 2018 liquidity crisis.

Considering the distribution of the sample entities based on amount of liquidity cover, we see the following trends rating-

wise as well as NBFC-type wise.

3.97

2.26

5.84

3.49

No. of Months

Median Liquidity Cover (No. of Months)

AAA (8) AA (26) A (22) Overall (56)

3.36

12.00

2.33

3.08

Median Liquidity Cover (No. of Months)

Retail NBFC (23) Wholesale NBFC (9) HFC (18) MFI (4)

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Fig-9: Liquidity Cover Range (Rating Category)

Source: CARE Ratings

* Indicates proportion of entities in the rating category falling in a given LC range

As seen above, of the overall sample, 9% of the entities have a liquidity cover of less than 1 month, whereas about 54% of

the entities have a liquidity cover of over 3 months. A large proportion (about 38%) of ‘AAA’ rated entities have a liquidity

cover of over 12 months. Similarly, about 54% of the ‘AA’ rated entities have a liquidity cover of 1-3 months. It is pertinent

to note that for strong NBFCs backed by strong corporate groups/funds or GoI, the market access has remained favourable

and hence a lower on-balance sheet cover may not be a cause of concern given their ability to raise resource during these

challenging times.

Fig-10: Liquidity Cover Range (NBFC type)

Source: CARE Ratings

Based on NBFC type, a large proportion of wholesale NBFCs (about 56%) have liquidity cover of over 12 months.

Furthermore, 57% of retail NBFCs have a liquidity cover of over 3 months providing them with sufficient cushion during

these stressed times. Data for MFI entities are available for only 4 entities; hence, meaningful commentary cannot be made

on the same. While 61% of the HFCs have a cover of less than 3 months, their robust collection percentage, relatively low

loss levels given secured nature of loans, and continued access to lending markets provides comfort.

13%

15%

9%

25%

54%

27%

39%

25%

4%

23%

16%

0%

4%

18%

9%

38%

23%

32%

29%

A A A ( 8 )

A A ( 2 6 )

A ( 2 2 )

O V E R A L L ( 5 6 )

LIQUIDITY COVER RANGE

<1 m 1-3m 3-6m 6-12m >12m

9% 35%

33%

44%

50%

30%

50%

4%

11%

11%

22%

56%

28%

R E T A I L N B F C ( 2 3 )

W H O L E S A L E N B F C ( 9 )

H F C ( 1 8 )

M F I ( 4 )

LIQUIDITY COVER RANGE

<1 m 1-3m 3-6m 6-12m >12m

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What next?

It is fair to assume that April 2020 would witness the lowest collections given that it was effectively the first month of the

moratorium and there was considerable uncertainty surrounding the damage that the Covid-19 outbreak was going to do

to the overall economy. If given the option, the borrowers would act to conserve cash and postpone payments. However,

the median collections have been encouraging for many NBFCs even when they have extended moratorium to their

borrowers. This would translate into less pressure on their liquidity buffers and should give some confidence to their

lenders.

Trends indicate that the collections have gradually picked up across segments during May and June 2020. Further, the

extension of moratorium period for further 3 months till August 2020 would mean that the collections may take time to

come back to pre-Covid levels. However, this time around, the NBFCs are likely to reformulate their moratorium policies

and are less likely to extend a blanket moratorium to all its borrowers. They are expected to be more selective which would

mean some recovery in collection percentage going forward. In the short-medium term, the ability of individual NBFC to

raise resources and ramp up collection efforts amidst gradual lifting of the lockdown would be critical from the liquidity

point of view.

The overall funding environment for the sector seems to have improved somewhat given high level of liquidity in the

banking system and the various fund raising channels put in place by the government, viz., TLTRO 2.0, Partial Guarantee

Scheme (for on-balance sheet lending as well as for asset pool purchase), refinancing schemes and relief measures for the

MSME sector among others. This, coupled with expectations of improving collections, should aid the overall liquidity

position for the NBFC sector.

CARE Ratings Limited Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022. Tel: +91-22-6754 3456 I Fax: +91-22-6754 3457 E-mail: care@careratings.com I Website: www.careratings.com I CIN: L67190MH1993PLC071691

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