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Navigating the Pandemic – Lending Business Perspectives

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NBFCs have been strongly impacted by the pandemic of 2020-21 and its continuing aftermath. The impact is two-fold – firstly on the scheduled repayments, these have been hit given borrower distress; and – secondly on fund raising; lenders have been circumspect about offering fresh lines. In some extreme cases lenders have even downsized their committed lines, thus putting Small and Medium sized NBFCs (NBFCs credit rated below A category or with AUMs less than Rs. 350 crs) in a precarious credit-freeze position.

There is however some asymmetry in the NBFC space regarding access to fresh debt funds. Large NBFCs (NBFCs credit rated AA category and above) being financially suave, participated in TLTRO-2 and Credit Guarantee Schemes and were able to borrow at soft-rates – typically single digit pricing for up to 36-month tenures. This money helped create a war-chest by which these NBFCs were better placed to face oncoming uncertainty. The Small and Medium sized NBFCs however had to negotiate difficult times.

Surviving the pandemic however was not just a matter of higher disposable liquidity or a strong parentage. It was about differentiating governance and sustainability measures. In our experience of being a lender to over 55 NBFCs and MFIs we observed certain behavioral commonalities among well governed NBFCs irrespective of their AUMs, geographic spread, financial connects or their negotiating abilities. To maintain their financial health and protect their organizational identity, well governed NBFCs took a few basic but deeply impactful steps as follows:

• Won employee trust by being empathetic – a clear show of faith in employee’s abilities and intentions helped earn employee trust in favor of the organization. While it was only reasonable for employees to feel threatened by the disruption, well governed NBFCs addressed these fears – be it ‘work-from-home’ privileges, emergency medical support for families or transport arrangements during Lockdown-1 and 2, the benefits accruing to the organization in the long run were far higher than sunk rupee costs.

• With employees standing by their side – they kept in constant connect with customers for fortifying collections – Once the house was in order, employees stood unequivocally the by organization’s side. By some estimates, customers prioritized repayments of lenders with whom they perceived a greater connect and this was cultivated and nurtured for the benefit of the organization. Such solid engagement with existing customers also helped protect market share in the long run.

• The better governed NBFCs communicated consistently and effectively with their lenders, with high quality information flow continuing uninterrupted. This augured well for the lenders who wanted information on collection efficiencies, restructured assets, recoveries to counter the haze of uncertainty. Thus, such connect with the lenders cultivated greater trust leading to better recall at time of participation in TLTROs, Credit Guarantee schemes and even fresh term lending lines, helping ease the liquidity position to some extent.

• Spent time on smartening internal processes – during the disruptions, these well governed NBFCs furthered the agenda of internal improvements. Workflows and processes were critically realigned to reflect evolving realities. Such realignment helped them reach out and serve their customers better. Well governed NBFCs also ensured that the strategies adopted were communicated clearly and consistently throughout the organization. It helped these strategies to be implemented with the exact perceived vision, thus bringing quantifiable results.

• Rationalized expansion, product-lines, discretionary outlays – this perhaps was the most obvious reaction that every NBFC identified as part of its strategy to counter the effects of lockdowns and restrictions. However, its success lay in optimal implementation. Operational frugality helped well governed NBFCs post financial results better than their peers.

• Cultivated Sustainability of operations – During lockdowns and times of restricted movements it was difficult to maintain ‘business as usual’ status, however well governed NBFCs rolled out actionable operating procedures (to do’s) – via formal as well as informal channels, thus avoiding standstill situations. The best part was that these ‘to-dos’ were evolved in shortest time but were capable enough to handle evolving situations. Even in instances where decision makers were out of action, such sustainability measures help the well governed NBFCs tide over short term uncertainty.

The pandemic taught businesses to pivot and adapt to changing environments to protect themselves. Digitization among others was a major factor setting apart businesses – very often being the deciding factor for survival. Overall, well governed NBFCs stuck to basis and concentrated on perfecting the execution game.

About the Author

Kedar Deshpande is a Chartered Accountant and has held important positions in a large Multinational Bank, a Rating Agency and a Systemically Important NBFC over the last 15 years. Currently he heads the Product Strategy and Wholesale Funding vertical of Profectus Capital Pvt. Ltd. While finance continues to be his passion, he aspires to be a change agent and continues to work in this direction.

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