It is a hard time for both the large and small borrowers to get new loans from the banks, the reason is financial institutions now will check the stress level of the lenders before approving loans. Pandemic COVID-19 had resulted in a significant decline in revenue due to the extended lockdown. It applies to both big businesses and MSME (Micro, Small and Medium Enterprises), also banks with their consultancy team assess the extent of vulnerability in default payment. Lenders weighing the probability of such exposures turning into future non-performing assets (NPAs). Banks and financial institutions see a lot of uncertainty when it comes to the quality of the assets so banker believes that it is crucial to study the cash reserves, cash monitoring, and past track record before extending the additional loan to companies.
It is noted that there exists uncertainty and shows that majority of the accounts are in stress. Most of the accounts in MSME are vulnerable to NPAs (Non-Performing Assets) and many companies facing cash flow pressure. As per the TransUnion CIBIL report, the ratio of bad loans in the MSME segment increased by 12.5% in January. But before the lockdown majority of the accounts were quality accounts, the track record of the MSME was also good. The issue with cash flow started only after the COVID-19 pandemic. Many lenders, including banks and NBFC, are placing additional safeguard measures while they continue to lend with already stressed companies.
Lenders are deliberately taking proactive measures like TEU tests, additional credit rating, strict monitoring of cash flow. Bankers are also distressed in binding funds to some section where new loans are to be issued. Accounts that were standing before the lockdown began to have no such issues with their credit pipelines. Bankers are tensed about committing funds to some sectors where fresh loans are to be issued. Industry executives mentioned that in some sectors like aviation, hospitality, or even real estate business, even if the company has indeed a great track record or never defaulted, lenders are taking a cautious call.
