Credit Crunch Over? NBFCs Restart Sanctioning Loans As Liquidity Situation Improves

Reserve Bank of India. (Nagesh Ohal/India Today Group/Getty Images)

NBFCs (Non-Banking Finance Companies), which had earlier cut lending operations following the IL&FS crisis, have now resumed credit disbursal to various sectors of the economy on account of improving liquidity in the market, reports Economic Times.

Unlike commercial banks, NBFCs don’t accept deposits or issue cheque books to its customers. However, they undertake lending operations.

“NBFC loan business is heading towards normalcy. We can expect that by January it will reach this year’s September scale (crisis hit fully in October) as companies have resumed disbursements and even sanctions,” said Umesh Revankar, managing director, Shriram Transport Finance.

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The liquidity crisis in the NBFC segment over the past few months can be traced back to the September 2018 default of IL&FS, an NBFC giant operating in the infrastructure finance space.

Following this, the government had asked the Reserve Bank of India (RBI) to provide a special liquidity window for NBFCs. However, the central bank differed with the government's assessment on the same and this has added to the tensions between the two.

Commenting on improved prospects for NBFCs, Prabodh Agarwal, group CFO, IIFL Holdings (a major NBFC) stated that “low-cost housing loans are leading the way. Risk of defaults has receded significantly. The scene will shine more next quarter as specs of new loan sanctions are visible on the horizon.”

Also Read: Can The Non-Banking Finance Sector Be Nursed Back To Health?

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