Lockdown Impact: Small Businesses Most Affected By Lockdowns, May Fail | Business News in India


MUMBAI: Non-bank financial corporations (NBFCs) and rating agencies have warned of defaults in the small and medium-sized segment if the lockdown continues. Lenders said that unlike last year when they got additional lines of credit and relief in the form of a moratorium, small businesses don’t have enough cash to help them get through a shutdown. prolonged.
“While it is too early to comment on the magnitude of the impact on asset quality of personal loans due to the increase in Covid cases, there is cause for caution. After the nationwide lockdown last year, we saw a sharp drop in collections for most asset classes, although the availability of a moratorium allowed for a pause in recognition. of the NPA, ”said Abhishek Dafria, vice president and manager (structured finance) at Icra.
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Dafria added that although the current restrictions are localized and less severe, the severity has gradually increased as the upsurge in Covid cases has yet to be brought under control. Noting that last year, it was microfinance and unsecured loans to SMEs that recorded the highest defaults after the foreclosure period, he said the risk categorization would remain similar for areas subject to stricter government restrictions.

According to the lenders, they would be powerless if the loans slipped into the category of non-performing assets (NPA) because then no further relief could be granted and they would have to initiate a recovery procedure. Last year, in addition to the moratorium and emergency line of credit, an SC order prevented banks from classing defaults after the Covid outbreak as NPA.
Since small business default could result in a credit freeze for this segment, the RBI may be forced to consider a moratorium if foreclosure restrictions are geographically wide and extend over a longer period. The Finance Industry Development Council, which represents the NBFCs, wrote to the RBI requesting an extension of the one-time restructuring of MSME advances until March 2022, as companies have yet to resume operations due to the upsurge in Covid case.
“Due to the severe second wave of COVID-19, MSMEs as well as the retail and wholesale sector have not been able to revive their economic activities and therefore urgently need the support of lenders. Various surveys and reports predict that the operating environment for banks will most likely remain difficult, as the second wave could start the slow recovery in consumer and business confidence, and further reduce the prospects of banks for new business, ”said the advice in his letter to the governor of the RBI.
Bankers said the combination of the moratorium and emergency credit line guarantee program the previous year helped protect banks, NBFCs and small businesses. “Last year the supplemental line of credit allowed some small businesses to provide expensive loans to NBFCs and the moratorium provided relief until operations started. This time around, many small businesses will not have the capacity to stay afloat if the lockdown is extended, ”said a senior banker.
To concern Small businesses can default as they are hit the hardest by lockdowns

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