RBI Moratorium: NBFCs stare at asset liability management challenges

The instant reaction to Friday’s decision by the Reserve Bank of India (RBI) of granting a three-month moratorium on all term loans was welcomed by lenders. But with non-banking financial companies (NBFCs) faced with retiring their short-term liabilities, it appears the joy could be short-lived.

Even as lenders may record the interest accrued (from customers) during this period as income (which would not impact their profit and loss statement), the corresponding cash receipt will not flow through as a result of the moratorium. This, in turn, will affect the cash flows of NBFCs, putting further pressure on their asset-liability management (ALM). The most affected would be the one-three month ALM bucket. Some experts believe ALM for up to six months could be affected if cash flows remain impacted.

“While the moratorium provides some relief on the assets side, it is on the liabilities side that challenges emerge for NBFCs with a high share of capital market borrowing,” says Ajit Velonie, director, CRISIL Ratings.

NBFCs such as Bajaj Finance and HDFC fund 45–47 per cent of their liabilities through money market instruments. Those like L&T Finance, Shriram Transport, and Mahindra & Mahindra Financial Services dip into bonds and non-convertible debentures to meet 48–53 per cent of their funding needs. Since these instruments have no forbearance, they have to be retired as and when the liability is due for repayment.


Anticipating an ALM mismatch, the RBI has opened up the targeted long-term repo operations of Rs 1 trillion aimed at increasing banks/institutions’ investment appetite for NBFC debt instruments. However, according to a fixed-income head of an AMC, MFs aren’t subscribing to money market instruments of NBFCs in the light of recent crash in the value of liquid funds. “We are seeing increased redemption pressure in this category. This limits us from taking exposure to NBFCs’ money market instruments,” he adds. Fund managers say over the past nine months, their appetite for such capital market instruments have fallen.

Another senior executive, who heads the treasury operations of a private bank, says banks would be on a capital conservation mode. “Now isn’t the time they would want to buy NBFCs’ money market instruments,” he adds. However, for any meaningful participation, he says it’s critical bankers get back on their feet.

Whether the TLTRO will indeed help NBFCs address the ALM mismatch effectively remains questionable.

Unlike 2018’s liquidity crunch, Ananth Narayan, associate professor-finance at SPJIMR, says NBFCs are now facing a problem of perception. “It’s not just a question of liquidity,” he adds.  Also in 2018, growth wasn’t as much an issue for NBFCs as it is now. “Back then, NBFCs moderated their growth rate to conserve capital. There was still genuine appetite for loans,” says an analyst tracking NBFCs. 

In the current scenario, experts say even if NBFCs slash their lending rates, there aren’t many takers for loans, given the pressure on revenues (of customers).

“If NBFCs cannot offer growth potential, who will give them capital support?” the analyst quoted above questions. Therefore, despite the cost of funds plunging and TLTRO aimed at addressing NBFCs’ short-term ALM mismatch, experts warn that the next three months will be a tough ride for the sector.

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