This refers to "Slowdown and NBFC crisis pose fresh NPA scare for banks: Moody's" (July 29). It’s true that while public sector banks (PSBs) are coming out of stressful situations, a number of NBFCs and HFCs could be slipping into problems. 

The overall slowdown in the economy plus lending to the now problematic real estate sector will impact the asset quality of the non-banking institutions. Already there are strong indications of a slowdown in auto and FMCG sectors. 

Besides slower retail loan off-takes, defaults will probably increase as the job markets are contracting and incomes are not rising. MSME loans, especially the NPAs in the Mudra loans, is a cause for concern. The impact of loans stuck in real estate and infrastructure projects will show up in the balance sheets of NBFCs/HFCs and eventually banks since the latter were doing a lot of lending through the former, in the last few years.

Reports about the asset quality and amount of stressed assets of some large NBFCs/HFCs is causing concern. It may be advantageous in the short term to let things lie low, but it may be disastrous in the medium term if the NPAs of these institutions grow uncomfortably high on account of the interconnectedness of lending/investments in banks, NBFCs, HFCs and so on. The time to carry out a asset quality review of NBFCs/HFCs has come. Based on revelations, it may be easier to fix the problem now rather than postponing it.

Arun Pasricha, New Delhi

Published On : 30-07-2019

Source : Business Standard