Bad News for NBFCs & SFBs Shareholders

Introduction:

NBFCs and SFBs are going through a difficult situation. How these institutions are taking the action on recovery of loans. The second wave of the Covid-19 Pandemic has greatly affected the Small Finance Banks and NBFCs to a higher extent. What are the problems this sector and witness and what lies ahead in this sector? Let’s discuss this in detail.

Bad News to Shareholders

• The impact of the second wave is more than the first wave even though the longevity is less as compared to 1^st wave.
• The collection efficiency was going on by these NBFCs and SFBs for the last 2 months even when the lockdown was there.
• The bad news is the casualties of these collection agents of NBFCs and SFBs have increased in the last 2 months.
• In last year’s wave, the human casualties were not there as compared to this year.
• Hence the management is also becoming cautious and is not worried about the bank balance sheet but is worried about people’s balance sheet. Hence collection efficiency has come down considerably
• The NPAs problems in these NBFC and SFB have doubled in April and May 2021.
• The collection efficiency has gone down by 10%. Usually, NPA numbers are in single digits, but this high reduction rate in Collection Efficiency will also greatly impact the NPA figures.
• NBFC could raise bad loans by 50% in Q122.
• Even the cheque bounce rates have spiked up by 5% in May 2021.

Conclusion:

If the investor is holding the shares of small NBFCs, microfinance, SFBs then it could be a painful phase. As RBI had said, “The NPAs could be 13%-15%  by September 2021”. This could be learning to the shareholders that the strong banks will become stronger and weak will become weaker. There could be consolidation in this in the coming 1 to 2 years. These NBFCs, SFBs, and PSU Banks can be the target of acquisition by the bank with big retail orientation, balance sheet, and strong capital adequacy ratio. One should consult their financial advisor before making any investment decision in the stock market.