Lenders want to ensure that they have a clear view of the borrower’s future default risks and cash flow position in light of the peculiar challenges brought on by the pandemic.
“The pandemic has disrupted the cash flow of businesses in a significant way, and as large value loan offers are increasing, we thought it prudent to hire agencies and investigate the company’s default risk and default probability,” said a lender who has hired such an agency. “These agencies are examining total debt, debt-service coverage ratio, cash flow and various other metrics to determine whether Whether they will be able to meet the debt obligations or not.”
Banks want clear visibility on subsidiary operations and other activities of companies, especially around the moratorium period. In many cases, companies are approaching banks with expansion plans and lenders also want to examine whether the firms have a clear strategy and what could be the macroeconomic and sectoral drivers.
“The pandemic, loan moratorium and uncertain business environment have made many banks seek clarity and additional relaxations regarding financial health. borrowers At the time of renewal of new loan offers or facilities. Gaganpreet Puri, Leader, Risk & Regulatory, Alvarez & Marsal India said, “There is a lot of due diligence, detailed financial analysis and in-depth assessment of credit risk and default around loan proposals – especially when the amount is Rs 500 crore and above. ” specialist.
In many instances, lenders claim that they have no visibility over the companies’ operations. Many companies have seen their valuations pick up, especially those of listed companies, but banks are concerned about the underlying assets and the impact on future profitability and revenue.
“Many companies have approached banks as they want to do mergers and acquisitions and need financing. In these cases, banks want a rationale behind such maneuvers,” said a person.
Firms specializing in this segment say they are being asked to provide objective and automated credit analysis and ratings based on the company’s financial metrics.
“AI powered automated predictive credit analysis tools are increasingly being adopted by banks and financial institutions,” said Amit Maheshwari, Strategic Advisor, FinMind.
FinMind claims that its predictive analytical capability is capable of early detection of potential credit risk events and has successfully predicted credit weakening of many companies in the past.
Bank credit growth has been slow for the past few years. Data from the central bank showed that credit grew by 6.61% in the fortnight ended August 13, from 6.2% in the previous fortnight. Credit to the corporate sector remained weak and grew marginally by 1% during the same period.