Magma Fincorp, which realigned its product portfolio about two years ago, is hoping to be in a “better stead” during the current crisis triggered by the Covid-19 pandemic.

The NBFC had strategically scaled down its exposure to the tractor lending business and broadbased its loan book by focusing on affordable housing and used vehicles finance where profitability is higher and the propensity to default is lower.

Default risk

According to Sanjay Chamria, Vice-Chairman and Managing Director, Magma, it is difficult to estimate the exact impact of the current crisis on the economy. However, given the fact that NBFCs and HFCs cater to the more vulnerable sections of society, whose cash flows are highly volatile, there is likely to be an impact on the recoverability of dues. Defaults are likely to be higher in unsecured personal loan and consumer loans.

“A majority of our loans are given for income-earning assets and their repayment trackrecord is higher than that given for consumption,” Chamria told BusinessLine .

More than 60 per cent of the NBFC’s home loan customers are eligible for interest subsidy under the PMAY (Pradhan Mantri Awas Yojana) scheme. Any default in repayments may render them ineligible to get the interest subsidy. Hence customers would be more prudent in ensuring repayments, he said.

Impact study

Magma is planning to undertake a study to assess the severity of the impact of Coronavirus on its customers across various States and districts. Based on the assessment, the company will take a call on whether there is a need to rejig its product focus.

“Corona has not impacted all States and districts equally and some places are more badly affected than others. So we plan to commission a study on the severity of the virus in different districts and see how it impacts the livelihood or income earning of our customers,” he said.

It will take the company one to two months to complete the assessment survey and till then it will focus on collections.

“We are in no hurry to lend because right now we would like to stabilise the portfolio quality and that will be the focus of the company. In the process, we will see how affordable housing and used vehicles asset is behaving and whether we should continue building our focus on that or should we look at a revision in product focus given the current circumstances,” he said.

Liquidity support for NBFCs

The NBFC sector, which has been reeling under tough liquidity conditions post the IL&FS crisis, is likely to face a further asset-liability mismatch if they are not extended a moratorium on their liabilities. While the recent guidelines issued by the Reserve Bank of India direct banks and NBFCs to extend a three-month moratorium to borrowers, there is no clarity on whether such moratorium would be extended to NBFCs for their funding from banks.

“We have sought certain clarifications from the RBI on the March 27 circular because there are some ambiguities in that. We want to be sure that the moratorium we are offering to our customers will be available to us. Otherwise, there will be an asset-liability mismatch,” he said.

While the central bank has come out with several circulars over the past seven-to-eight months to encourage banks to help the NBFCs, the risk averse banks have been lending only to large NBFCs with ‘AAA’ rating. The liquidity released from banks should be more widespread and should be extended to small and medium NBFCs with lower credit rating, he added.

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