Covid-19 crisis: Each bank to decide on granting moratorium to NBFCs

Topics Coronavirus | Banks | NBFCs

On Friday, bankers indicated that a lot of lenders were inclined to give forbearance to finance companies but were waiting for SBI’s views on it
Banks will individually take a call on granting a moratorium to shadow lenders after a meeting of the Indian Banks’ Association (IBA) failed to come up with a unanimous view.

The issue has been in focus after the Reserve Bankof India (RBI) permitted banks to give moratorium on term loans to customers facing cash-flow problems during the nationwide lockdown imposed to curb the spread of the coronavirus pandemic.

However, there was no clarity on whether the finance companies that borrow from banks would get the option to delay payments to their lender banks.

The management committee of industry lobby group IBA met via videoconferencing on Saturday to discuss the issue among other matters. Two bankers said chief executives of banks, who are members of the IBA panel, shared view points but nothing concrete came out of it. Chairman of State Bank of India (SBI), who is also the IBA chairman, was also part of the discussion. Each bank will have to take a call on giving moratorium. At least, this is case for now, a banker said.

On Friday, bankers indicated that a lot of lenders were inclined to give forbearance to finance companies but were waiting for SBI’s views on it.

In the absence of clarity on whether the moratorium applies to the loans the non-banking financial companies (NBFCs) have taken, the shadow lenders have to repay banks at a time when their cash flows have taken a hard knock because of the coronavirus pandemic.

On the other hand, NBFCs and housing finance companies (HFCs) have to extend the moratorium to their consumers on term loans. But majority of banks are yet to decide on granting a moratorium to the NBFCs and HFCs that are availing credit like any other borrower.

Also, given the severity of cash flow disruptions because of the lockdown, bankers and NBFCs have argued that a longer moratorium period and more initiatives would be needed for support.
According to a CRISIL statement, the uncertainty on moratorium has resulted in some delay in decision-making by the lenders. The liquidity profile of a few NBFCs could come under pressure in the absence of a moratorium.

CRISIL will continue to monitor the situation closely for all its rated companies, it added.

NBFC growth will be gradual and hence just a three-month moratorium would have to be supported by an interest exemption from liability providers as compounding would lead to higher non-performing assets, said a financial sector practice head at a global advisory firm.

Banks have been a crucial source of funding for finance companies, micro-finance institutions and HFCs, especially as liquidity in the market turned tight after IL&FS defaulted on dues in 2018.

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