We expect Majority of NBFCs (Non-Banking Financial Companies) to go bust within the next 2 years.
There are approximately 9500 NBFCs in India and about 800 of them with an Asset size of more than INR 100 crores i.e. 9% of the total. And RBI recognizes only 250 of them as Systematically Important. In short, only 1-2% NBFCs command a premium and pricing power.
Before the Asian Crisis of 1998-99, about 4000 NBFCs were registered and only 20 could survive the fall. These 20 eventually went on to become the Market Leaders until 2008.
The delinquencies / credit defaults are bound to rise in the next few quarters. And since most NBFCs even in India play around the usual Long-Short game of Lending Long and Borrowing Short, Asset-Liability Management (ALM) mismatch is just around the corner.
An easy way to study an NBFC during a crisis is to look at the Liability mix, as troubles on the Asset-side will be an industry-wide phenomena.
Comments