Now
There are few questions which needs to answered : -
Let’s work on them .
How is it going to affect the industry…it’s a positive effect but how does it affect and address the current crisis… Specially the dhfl , indiabulls of the world…
What about the current assest liability mismatch and upcoming payments.
The bigger will get bigger and the current ones facing crisis will eventually die or slow down to a large extent …
Trying to find out more
Regards
Divyansh
So will the NBFC’s go out of flavor? I know that strong parent holding companies can do well…likes of HDFC…Bajaj…and L&T…what will happen to many other NBFC’s? any comments?
There are many many NBFCs. Many bogus companies are surrendering their licences anyway due to tighter rules.
Now, few genuine smaller NBFCs will Surender too.
Investors in debt market won’t comeback fast having burn their hand
Have been able to manage liquidity in last 6 month via securitisation of loan book(My observation:IBHF earlier used securitisation as a tool to maintain high ROE)
Most of good assets have already been securitised and banks have been able to cherry pick thus only way to remain liquid is by not growing
Banks are polarised towards top NBFC with good promoters
Fresh Disbursement down 25-30% in NBFC
Its not a systemic risk for banking sector and opening liquidity window will create moral hazard
PSU bank will continue to loose market share with its structure issue and most of workforce >50years age, can be trading bet at best.
Yes bank and Indus mistakes were structured product were based on collateral rather than cash flow and that too sometimes holding company shares where recovery becomes challenge when stock price tanks
A Masterclass on Indian Lending Space & Lockdown’s Impact - Separating The Men From The Boys: Ep. 16 of Alpha Series with Digant Haria, India’s award-winning BFSI analyst.
Loans which go unpaid beyond 90 days gets added to the Gross Non-Performing Assets
Out of these loan, the mgmt. estimates what is the expected loss and makes provision for it in the P&L
GNPA - Provision becomes the Net NPA i.e. loan amount which is not paying for 90 days or more but mgmt expects to recover
Provision Coverage Ratio is defined as Provision / GNPA i.e. how much of the loans have been provisioned off
For Banks the above definition is largely par for course, however for NBFCs and MFIs under IND-AS the NBFCs and MFIs have moved to ECL method, therefore they dont need to necessarily follow the same 90 days DPD for loss estimation, e.g. CreditAccess Grameen for its one year loan does 100% write-off when loan goes to 60 DPD (if i recall it correctly, but for sure its less than 90)
A company write-offs the loan when they have tried everything possible but have come to the realization that they would not be able to recover the outstanding amount and thus write-off, in such cases the GNPA and loan book both reduces by the loan amount outstanding
ECL - Expected Credit Loss method, in this under IND-AS the lender has to define a methodology on how provisions are to be made, which reflects what the mgmt thinks is the loss they would experience in the loan book. there are three stages:
a. Stage 1 → Loans which are paying on time
b. Stage 2 → Loans which are currently in DPD
c. Stage 3 → Loans which are beyond 90 days or if lender wants a lower duration then they can keep lower duration
The above loan book is mulitpled by the probability of default (i.e. going in to NPA) and Loss expected once the loan goes into default
the sumproduct of this becomes the ECL of the lender…
Thanks this was really really helpful. Few more follow ups.
On 7,
Stage 1 is not NPA i.e these are normal advances/loan? So all loans are practically stage 1 on the day of disbursement?
Stage 2 is where there is delay even if by a day and till 90 days? or there is a separate definition of attributing this?
Stage 3 - is when they got to GNPA? i.e. not a single installment/repayment received in last 90 days?
If I understand IND AS rules says 90 days to put into GNPA but thats the max and banks/NBFC can take a conservative number which might be lower than this as well. Is this correct?
Yeah Stage 1 is loan which can be expected to go to NPA, based on the past experience
Stage 3 is not necessarily GNPA since as i had mentioned company can take a conservative stand to recognize the fact that money is not going to come back, and not wait till 90. Max that a company can stretch this limit is 90 days, but once can take lower as well
Hey guys unfamiliar with this space but had a few quick questions:
-why don’t we compare write offs per year instead of GNPA/NNPA considering space like MFI will not have timely repayment but likely that they eventually end up collecting the money/ also an NPA from a secured borrower would ideally be a lot better than one form an unsecured borrower. Is there a metric to see the actual amount of writeoffs that happen in a year and why is it not better to track that?
Are there any/many players specialised in the MSME/SME segment that are listed?
