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Part - VII

Moreover, currently, market access is limited to the higherrated NBFCs (‘AA’ and ‘AAA’ rating categories). Lower-rated NBFCs continue to depend largely on bank finance and fixed deposits, which tend to be more expensive. The growth of the mutual fund industry will address these issues to a large extent.

Also, only a few NBFCs are using securitization today. The acceptability and liquidity of securitized paper is also limited. CRISIL believes that the good performance of securitized transactions and a broader originator base will promote the development of this market, going forward. The development of these two funding sources will strengthen the NBFC business model from a funding perspective to a significant extent and help it to remain competitive with banks.

CRISIL-rated NBFCs to maintain their business strengths

CRISIL believes that its rated NBFCs will maintain their business position in their respective sectors. These are largely NBFCs who have high credit ratings (about 80 per cent in the ‘AA’ and ‘AAA’ rating categories) with a strong operational and financial track record. They have survived the shakeout of the late 1990s and have emerged stronger over time with their business models becoming more robust.

Although the banks’ growing presence in most of their key business segments will provide fierce competition, CRISIL believes that its rated NBFCs will maintain their business strengths in the near to medium term because of their strong customer relationships, traditional niche strengths, effective reach, lower overheads, good asset quality and most importantly, their improved resources profile.

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Source: CRISIL