“Normandy.”

That’s how fintech lender RedCarpet’s founder Sandeep Srinivasa described the situation India’s non-bank lenders are in today. 

Srinivasa was referring to the pivotal moment in World War II, when the allied forces stunned Germany by invading Normandy, France. He sees non-banking financial companies (NBFCs) playing the role of the allied troops in the battle against the economic slowdown. They need to be armed to fire up the economy. But instead, they are at risk of being cannon fodder, with banks being prioritised. 

“NBFCs have to make their way into a new post-Covid world without air support from banks and regulators,” said Srinivasa. “If we make it to the other side, we will drink French wine. But a lot of us won’t make it.”

NBFCs lend close to 20% of all credit in India and have traditionally traditionally The Economic Times Crisil: NBFC credit growth will slow to a decade low of 6% Read more contributed to 35% of all new lending. The small and mid-sized NBFCs have been particularly active in increasing credit penetration, especially to borrowers banks won’t touch. Banks mostly lend to their own account holders, the salaried class, and those who have a stellar credit score. And they deal with larger loan sizes. 

NBFCs already limped into the pandemic period, wounded by the IL&FS IL&FS The Economic Times IL&FS: The crisis that has India in panic mode Read more  crisis. When the infrastructure lender defaulted on payments to lenders in 2018, it resulted in reduced liquidity for NBFCs. In the year ended March 2020, NBFCs saw their lowest growth in a decade.

That outlook only worsened with the onset of the Covid-19 panic, even with the intervention of the Reserve Bank of India (RBI), the country’s central bank. 

Soon after the pandemic paralysed the economy, the RBI allowed all lending institutions to offer a three-month moratorium moratorium Moratorium A temporary measure to let borrowers not pay their EMIs for a specific period of time. But interest liabilities will continue to accrue in that period.  on loan repayments, starting 1 March. This was a double-edged sword. On one hand, it spared NBFCs the burden of defaults and non-performing assets (NPAs). On the other hand, banks didn’t extend this courtesy to NBFCs.

Last week, things got direr. The repayment moratorium was extended by three months—till 31 August. It was a triple whammy.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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