Mumbai: While non-banking financial companies (NBFCs) have managed to report better that expected numbers for the quarter ended December 2016, experts feel that the January-March period will provide a better picture of the exact impact of demonetisation on their balance sheet.
Housing finance firms catering to the salaried class, unsecured loans to the urban or salaried segment and wholesale lending companies were least affected on asset quality though retail growth has taken a knock.
However, the institutional research desk at Kotak Securities noted that the impact was more pronounced on niche NBFC’s focussed on the lower end segments like small business loans, small fleet commercial vehicle operators and micro finance sector.
“NBFC stocks have bounced back likely indicating that demonetisation has no impact on the real world. We would wait for better operational trends before getting more assertive on the sector. We believe that the impact of demonetisation will be tested in Q4FY17 when business gets back to normal.
The major concern is that small businesses will take time to resume business due to disruption in the cash ecosystem,” said analysts at Kotak Institutional Equities.
Pointing out that the October-December period was an eventful quarter for NBFC’s with distinct trends in each of the three months, Kotak Securities said October being a festive period reported strong disbursements, which spilled over to early November as well.
The first week of November was strong, but new businesses were almost frozen for most of the second and third week. NBFCs were aggressively engaged in collections during the period as large cash deposits in the borrower’s bank account supported collections even as business activity was weak.
The overall business performance was better in December with higher disbursements and better recoveries as businesses resumed. “While the commentary of NBFCs on impact of demonetisation was fairly mixed in Q3FY17 earnings conference calls, NBFCs at our recent conference in Mumbai alluded to the fact that demonetisation will have longer impact on growth of businesses and loan growth of NBFCs,” Kotak Securities added.
