Tag: money market

A year-on-year (y-o-y) drop in issuances of commercial papers in April 2021 may be hinting at a slowdown in credit growth at banks and non-banking financial companies (NBFCs). As financiers count the human toll the pandemic is taking on their companies, they have begun to restrict some areas of operations that require high contact such as disbursements and collections. The phenomenon is in turn playing out in the CP market as companies do not need as much funds as they would under normal circumstances.

According to data released by the Reserve Bank of India (RBI), CP issuances were to the tune of Rs 89,576 crore in April 2021, lower than Rs 1.33 lakh crore in April 2020. Interestingly, April 2020 was a month of nationwide lockdown, in contrast to the smaller lockdowns currently in effect across states.

Analysts are of the view that financial sector entities — both banks and non-banks — have turned cautious about the well-being of their employees now that a highly virulent strain of the Covid-19 virus is infecting people. So while it may still be early to determine the impact of the second wave on credit offtake, lending has taken a backseat, for sure. “Banks are concerned about their branch officials and NBFCs are also being careful about the safety of employees. So, disbursements are not where they would have normally been and the NBFCs’ fund-raising requirement is also lower,” an analyst tracking the financial sector said.

The trend may well continue through the current quarter. On May 3, Kotak Mahindra Bank MD & CEO Uday Kotak said the bank was ensuring that all its people work from home for the next one week, including those in the sales and collections verticals. This arrangement is to be monitored on a week-by-week basis.

The current wave of the pandemic has spread deep into India’s rural areas and financiers operating there are feeling the pain. Umesh Revankar, vice-chairman and MD, Shriram Transport Finance Company, told analysts on April 30 that the spread of Covid-19 in the hinterland has impacted the company’s staff and their relatives, resulting in lower productivity in the month of April and possibly in May as well.

The increasing digitisation of disbursements at NBFCs has taken some of the edge off the pain but other risks remain. On Monday, the Reserve Bank of India (RBI) warned that the impact of the second wave could manifest chiefly in the form of destruction of demand. Analysts have earlier flagged this risk in the financial system.

In a recent note, Emkay Global Financial Services had said it expects about 50-70% demand destruction for self-employed focused products and 25% for products geared to the salaried class during the lockdown. “Combined, banking credit could moderate by about 159 basis points (bps) to 9.3% in FY22. NBFC credit will similarly slow by 140 bps to 12.8%,” Emkay had said.