NBFC association to RBI: One-time loan restructuring need of the hour

It has also asked the RBI to permit debt recast without the need of a 5 per cent provisioning on loans, as mandated by the restructuring scheme.
The Finance Industry Development Council (FIDC) — an industry body representing non-banking financial companies — has, in a fresh letter to the Reserve Bank of India (RBI), sought a one-time restructuring of loans availed by businesses and individuals who may be facing cash flow problems.

Micro, small, and medium enterprises (MSMEs) are currently availing of this facility, and the FIDC has asked for the same to be extended to all customer loans, to enable lenders to re-assess cash flows of customers and accordingly revise repayments.

It has also asked the RBI to permit debt recast without the need of a 5 per cent provisioning on loans, as mandated by the restructuring scheme.

The central bank has provided a three-month moratorium on repayment of term loans and has deferred interest payments on working capital loans by 3 months. While the FIDC feels it will provide some breathing space, it nevertheless believes the amount is inadequate to arrest the impact of the lockdown.

The council has further sought clarification on the issue of moratorium on loans availed by NBFCs. In the absence of any clarity, shadow lenders will have to pay installments at a time when their cash flow has taken a knock. In addition, NBFCs have extended the moratorium to customers, without any support from banks.

“The NBFCs operate on a leverage of 4-5x, and while the RBI circular dated March 27, 2020, permits all banks to offer moratorium to customers, there has been widespread confusion and some of the banks have informed us they are not allowed to offer moratorium to NBFCs,” said FIDC.

Further, CRISIL has said shadow banks may face liquidity pressure if collections and money paid by borrowers fail to pick up pace. These NBFCs have Rs 1.75 trillion in debt obligations maturing by June.

With collections diminishing and the moratorium only for borrowers, raising funds is critical for NBFCs, given they do not have access to systemic sources of liquidity like banks, and also depend significantly on wholesale funding.

While the targeted long-term repo operation or LTRO was supposed to benefit NBFCs, but experts believe only half the Rs 1 trillion is earmarked for primary issuances. In addition, an expected scramble for funds means corporates and government-owned financiers will also be interested in this window. Consequently, only the higher rated NBFCs may end up benefiting.

Given that a significant amount of NBFCs’ loan portfolio is securitised by way of pass-through certificates and direct assignment routes, close to 10 million borrowers have not been able to benefit from the moratorium granted by the RBI. They have also asked for moratorium on all overdue loans that are standard accounts, as of February 29.

“There may be a standstill on aging of past overdues for the moratorium period,” the FIDC said.

A loan account with an overdue position of 60 days — as on February 29, 2020 — if offered moratorium of 3 months, will continue to remain at 60 days overdue till May 31, 2020. After this, the overdue position will change with each passing day.


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