Foreign NBFC Lenders Face Repayment Risks As US Dollar Strengthens
Foreign lenders exposed to Indian finance companies and housing finance companies face the challenge of servicing loans from some of these companies as the dollar has strengthened against the rupee.
In addition, the lack of clarity on the moratorium on the payment of funds raised through external commercial borrowing (ECB) has created uncertainty.
As benchmark interest rates around the world have fallen, the dollar has strengthened against various currencies, including the rupee.
This would mean that borrowers from foreign banks would have to shell out more rupees to buy a dollar, which would increase the cost of servicing the debt.
Taking advantage of low interest rates, Indian housing finance and finance companies had raised funds abroad through various instruments.
Today, the market and business climate have changed in unrecognizable ways, resulting in payment risks, said the managing director of a Mumbai-based non-bank finance company (NBFC).
The managing director of a foreign bank said Covid-19 had triggered a serious disruption in domestic and global markets. This has increased the risk of default due to the rising cost of repayments due to the turmoil in the currency markets.
Cash flow will be negatively affected due to the severe destruction of demand in India. Referring to the issue of granting a moratorium to NBFC (as borrowers), he said: – case decision.
Top rated companies, including players in the financial sector, have raised substantial amounts over the past 12 months. They have cash to continue to maintain repayment discipline.
Taranjit Jaswal, head of corporate banking, Barclays Bank, India, said many NBFCs have indicated they would not wish to use the moratorium. The bank closely monitors three sectors – oil and gas, automotive and NBFC for their needs.
Another UK lender Standard Chartered Bank, in a statement, said it has set up a $ 1 billion global Covid-19 fund. This is specifically to provide loans, import / export finance and working capital at preferential rates, to businesses providing goods and services to help fight Covid-19. It would also be used to support those redeploying production resources to help fight this pandemic, Standard Chartered Bank said.
Similarly, Deutsche Bank, in a statement, said the bank was in constant contact with its customers to support them with their liquidity needs and risk advice during this time.
The bank said it remains committed to providing all possible assistance to its clients and clients to help them weather the current crisis.