The nightmare for India’s beleaguered non-banking finance companies seems to have no end.

After the economic slowdown and liquidity crunch, now the impact of the Covid-19 pandemic is weighing heavily on the balance sheet of Indian NBFCs. A key indicator of this pressure is the rising number of stage-3 assets, which are accounts that have defaulted on repayment of loans for more than 90 days. The number of such accounts went up during the October-December period for most of the leading NBFCs in India.

As part of a Covid-19 relief package, the Reserve Bank of India had allowed borrowers to halt repayment of loans without impacting their credit history between March and August. But with the moratorium now lifted, borrowers still do not seem to have the ability to repay.

The building up of the stress for most of these lenders is a side-effect of the loan moratorium offered by them to customers in the initial period of the lockdown, according to Mumbai-based brokerage firm Emkay Global Services.

The growth of bad loans spells trouble not only for the $350 billion NBFC sector but also for the Indian economy as a whole. If NBFCs’ ability to lend is curtailed due to the surge in bad loans, consumption or demand could weaken further.

Surge in bad loans

Even the NBFCs which had an impeccable track record so far, such as Bajaj Finance, are faltering. With job losses and pay cuts continuing, Bajaj Finance, which predominantly gives personal loans, is facing a rise in loan defaults.

The stage-3 bad loans at Bajaj Finance have almost doubled to 2.87% of the overall loan book in the December quarter in comparison to 1.34% in the September quarter.

The impact of Covid-19-led slowdown on households’ income is clearly visible through the balance sheets of NBFCs. Mahindra Finance, Cholamandalam Finance and Magma Fincorp, which largely dole out tractor and vehicle loans, are also witnessing a rise in stress levels. In the December quarter, their stage-3 assets also ballooned.

NBFCs losing market share

Besides the deteriorating asset quality, the lending side of the business is also facing a spate of challenges.

The growth of NBFCs has stuttered as customers are migrating towards banks, which are offering lower interest rates, Emkay Global Services said. Hence, NBFCs are losing market share to banks, especially in the housing and auto segments.

With the NBFCs facing a double whammy of loss in market share and weakening of asset quality, there seems to be no respite in sight for them anytime soon.

This article first appeared on Quartz.