InvestorQ : Why has India Ratings downgraded all NBFC companies and what does it mean for my holdings in Indiabulls Housing Finance?
Neelam Naik made post

Why has India Ratings downgraded all NBFC companies and what does it mean for my holdings in Indiabulls Housing Finance?

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NISHA Nayak answered.
2 years ago
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It is not exactly a downgrade by downgrading of the mid-year outlook of the NBFC sector from “Stable” to “Negative”. This pertains to loans that NBFCs had given to builders to the tune of nearly Rs.70,000 crore where the moratorium is likely to end in the next few months and the real estate companies will have to start servicing these loans. That is where India Ratings expects that these NBFCs could run into problems due to the tight liquidity conditions in the market. This is in addition to Rs.35,000 crore worth of loans that comes up for repayment in the month of September. NBFCs had given nearly Rs 70,000 crore worth of advances to infrastructure developers and these would no longer enjoy mandatory repayment exemptions after December 2019. India Ratings expects many of these accounts to turn delinquent once the moratorium period ends as they just do not have the cash flows to service the same.

What needs to be remembered is that these moratorium loans account for more than 60% of the loan books of NBFCs and there are not too many investors in the market who are really interested in taking an exposure to these NBFCs. As per the data shared by India Ratings, nearly 40% of all real estate outstanding loans are with these NBFCs. The major NBFCs with such an exposure include L&T Finance, Piramal Housing, JM Financial and Altico. With expensive refinancing options, many of the infrastructure developers may be forced to make asset sales and opt for other restructuring options to meet repayment obligations. However, Indiabulls Housing is not very active in this particular space and this may not really impact the company. However, the general concerns surrounding the NBFC sector like high cost of funds and tight liquidity are a challenge for Indiabulls Housing Finance also. You should ideally be cautious about all the NBFC stocks at this point of time.
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