Edelweiss posts Q4 loss; misjudgment of pandemic hit hard

The Mumbai based financial services provider Edelweiss Financial Services gross misjudgment of COVID-19 pandemic has forced to report first loss since at least 2008

Consolidated net loss stood at Rs 2,281.55 crore for the quarter ended March, compared to a net profit of Rs 246.32 crore in the year-ago period. Total income of the non-banking lender declined 35% over the previous year to Rs 1,965.87 crore.

The quarterly loss was on account of increased impairment cost. For the quarter, the company reported an impairment cost of Rs 2,039 crore as compared to Rs 102.61 crore in the same period last year.

The company attributed the sharp jump to an impairment cost of Rs 2,549 crore following a revision in its ‘Expected Credit Loss’ model and impact of Covid-19.

Credit and market risks for certain counter parties increased significantly relative to such risks at initial recognition, resulting in recognition of higher amount of expected credit losses and gain/loss on fair value changes for the quarter ended March 31, 2020.

Management judgment for expected credit losses and gain/loss on fair values changes has been accentuated on account of factors caused by the Covid-19 pandemic.

Edelweiss didn’t disclose the extent of loans under moratorium. However, it expects the granting of the moratorium itself not to result in accounts becoming past due and triggering Stage 2 and Stage 3 classification criteria.

COVID-19 crisis had an impact on the company’s liquidity to the tune of Rs 4,000 crore. This has been mitigated by Rs 1,000 crore in funds from the RBI’s long-term repo operations, Rs 1,000 crore from bank lines, Rs 1,000 crore from asset sales and Rs 1,000 crore from reserves. It had liquidity equivalent to 24% of borrowings at the end of the March quarter.

The group’s credit business has reduced by Rs 11,000 crore in last 12 months. The loan book across ECL Finance, Edelweiss Housing Finance and Edelweiss Retail Finance stands at Rs 19,105 crore.

ECL Finance’s wholesale loan book has come down by 43% from peak. This includes a recent sale of Rs 4,000 crore in loans to international investors. Wholesale credit book is expected to come down further.

Capital adequacy of key credit subsidiaries: ECL Finance 21.0%, EHFL: 28.6%, ERFL: 29.4%, EARC: 32.5%.

Meanwhile, Edelweiss is in talks to raise Rs 1,000-1,500 crore of equity capital in wealth and asset management

The deal is expected to be finalised in 6-8 weeks. Additionally, the board has given its approval to raise a further Rs 1,000-1,500 crore in its subsidiary in EFSL if required.

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