As the second wave of COVID-19 progresses, Non-Banking Financial Institutions (NBFCs) face renewed asset quality and liquidity risks, according to Fitch Ratings. And these challenges, Fitch believes, may increase further if restrictions are expanded or prolonged.

Speaking to CNBC-TV18, Saswata Guha, Senior Director-Financial Institutions at Fitch Ratings India said that collections from SME and commercial vehicle (CV) financing are vulnerable and that it might be impacted if the lockdown prolongs.

“I don’t think we are yet experiencing a scenario where collections are dipping. But having said that, a month-long renewed restrictions in a state like Maharashtra, which contributes a significant chunk to the GDP, if some of these restrictions were to become more broad-based, then yes, potentially we will see some impact," Guha said.

Although on balance, collections have risen across MFI players, across segments, there are certain segments like SME, and to an extent, construction finance, which are arguably more exposed and vulnerable, should these restrictions assume a larger, broader proportion, Guha added. He said that they are largely negative on commercial vehicle financing, but SME is the one that concerns the most.

Among the CVs, Fitch continues to have a negative outlook on Shriram Transport Finance.

“Our outlook on Shriram Transport if you see is still negative. We revised it from rating watch because the overall financial profile including funding somewhat stabilized, but the negative primarily reflects the so-called uneven freight movement and the broader uneven economic recovery. In a situation like this, that is the second wave, puts more uncertainty to that. So, our overall outlook on the CV hasn’t really changed. However, we do believe that notwithstanding the situation a player like Shriram should be able to adjust to the new normal, whatever the new normal is,” he said.

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(Edited by : Yashi Gupta)