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Is the second wave affecting NBFCs recovery?

According to Fitch Ratings, India's non-bank financial institutions (NBFIs) are facing new asset quality and liquidity risks as a result of the second wave of coronavirus infections. These difficulties are likely to worsen if recent pandemic-containment restrictions are increased or extended, causing further economic and organizational disruption.

Consumers and businesses are also likely to better adapt their economic activity to the second wave of restrictions, as seen in other countries. Regulators appear keenly aware of the credit and liquidity implications of any broad, extended movement curbs, while NBFIs' day-to-day operations are also likely to be able to continue under the latest rules.

Fitch-rated NBFIs operate across India, with an emphasis on rural geographies that may be less affected by the recent steps.

In this context, SMEs, commercial vehicle operators, microfinance, and other wholesale borrowers are at greater risk of stress, particularly because financial buffers have narrowed prior to the global economic shock of the previous year.

Meanwhile, the Emergency Credit Line Guarantee Scheme for SMEs has been extended until June, giving borrowers more room to maneuver.

Maharashtra, the state with the highest economic contribution in India (13 to 14 percent of national GDP), is a key hotspot. In response to an increase in coronavirus cases, Maharashtra implemented tighter social-distancing measures over the weekend, including weekend curfews and weekday activity limits, which will last until the end of April 2021.

Additional restrictions, such as night curfews, have been imposed in several other states, including Gujarat, Punjab, Delhi, and Chhattisgarh, which together account for about 16% of the national GDP.

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