Recently the governor of the Reserve Bank of India Mr.Shaktikanta Das quoted that banks should get themselves prepared to face the challenges amid the rise of coronavirus disaster, as the outcome will surely impact all sectors of the economy. The way COVID-19 is spreading from country to country and impacting businesses cutting across various sectors, the consequence will surely change the fortune of financial markets and consumer behaviour. The COVID impact has hit the country at the wrong time when the domestic economy has been on weak track on account of a global economic slowdown.
With the economy under stress and slower movement of business happening for the last 30 days and which is expected to continue for the days or rather months to come, the global slowdown is meant to impact the health of both banking and non-banking financial companies. Sectors which are very critical to NBFCs such as auto, manufacturing and retail business are going through shock for a while. When the economy restarts, the banks and NBFCs will be pushed towards prudent lending for retrieving business which is going to add more pressure. Now let’s understand the major challenges in front of NBFCs amidst this pandemic virus outbreak which is heading towards a global recession.
Major Impacts on NFBCs due to Corona
- Markets rolling down, once known as the most preferred stocks, most of the NBFCs have lost close to approximately 30% to40% value in the last one month.
- The revenue stream of all NBFCs will be hugely impacted as there would be a significant drop in transactions, loan repayments, etc. at all levels countrywide. This means less collection by the NBFCs impacting their day to day operations and profitability.
- Affected businesses due to COVID-19 may take time to repay their loans and would further require financial assistance to weather the storm once the crisis is over.
- NBFCs relying on digital processing of transactions& bills can get their processes disrupted due to hardware shortages since importing countries like Korea and China are not operating their factories.
- A crucial pillar to the Indian economy, MSMEs will now struggle to sustain business and this will impact the NBFCs asset quality requirements.
- New policy measures or accounting rules could make the NBFCs vulnerable as the coronavirus pandemic looms to push the world into a downturn.
- Larger work pressure on NBFC employees to complete all the pending piled up work once the crisis is stable and stretched targets on each employee to grow business.
Finally, to conclude for those NBFCs who are well prepared with their business continuity and contingency plan can quickly respond back post the coronavirus outbreak slows down. A well-prepared organization can definitely bounce back, and NBFCs with proper planning can overcome the impact of this disruption.
In addition, on a positive side and being very optimistic, the weakening economy due to COVID-19 may force Indian government & regulators to take necessary measures and introduce other policy measures to strengthen NBFCs. The critical thing to do now is to stabilize the system, give confidence to the consumers, businesses and industry with capital and reduced interest rates.
Views expressed in this article are the personal opinion of CA Maneet Pal Singh, Partner, I.P. Pasricha & Co.