Budget 2019 – 1.34 lakh crore lifeline to NBFC sector

Government promising to bear the first loss of up to 10% of high rated pooled assets purchased by state run banks brings the much expected lifeline support to the NBFC sector, whereas banks will only be funding high quality NBFC’s. Big players who already have a good clout in the industry have continued to have good business growth.

Like Bajaj Finance, Bajaj Finserve kind of companies already have good growth and more over they are not much dependent on domestic borrowings. Most of the top NBFC’s have moved to foreign borrowings which gives them added cushion of lower interest rates.

Even considering currency risk, they are still at a good advantage when compared to their smaller counterparts who have to borrow at higher rates both due to their own performance issues on ratings as well as due to local borrowings.

The current move of lifeline by the FM, is not going to give a boost to the industry as a whole. It will make the big or quality players more bigger. In fact, this is what is required. “If you are genuine, I will help you get more rich.” This kind of approach by the government, for a shorter period may be against the economy as bad players will be left to die their own death. In the long run, it is going to be a huge positive to the industry and our country.

Liquidity issues in the market is likely to ease at a slower pace because the lifeline is less than half of what is required. And expecting government to bail out all kinds of corporate mess-up is not a good thought too. Let the industry figure a way out, through some support from the government.

Quality NBFC’s which are already enjoying very high valuations in the market will continue to attract capital from investor. So, if you are holding Bajaj Finance, Chola Finance kind of stocks, continue to hold, it will continue to go up for a long time.