RBI wants banks to take call on package, moratorium extension for NBFCs

However, banks have argued that the regulatory forbearance was extended for working capital, and for retail customers
The Reserve Bank of India (RBI) is unlikely to take a call on behalf of bankers to extend a moratorium to non-banking financial companies (NBFCs).

The approach, according to people familiar with the RBI, is that the regulator can only enable the banks to take such commercial decisions, and it is left completely to the bank if they want to ask for the loans, or extend a deadline. If such an extension happens, as decided by the lender, the central bank is willing to allow the delay to be considered as standard assets, just as what it has done for other working capital loans.

On March 27, in its off-cycle monetary policy review, the RBI had introduced a three-month moratorium on payments for working capital. While interest will be due on those payments, and can be recovered later, the delay won't be considered a default, the RBI had said.

However, banks have argued that the regulatory forbearance was extended for working capital, and for retail customers. Since finance companies don't have a concept of working capital, the forbearance didn't apply to them, bankers had argued.  The NBFCs have argued, though, that this is inherently discriminatory as they are equally affected by the economic slowdown brought forward by the lockdown.

Indiabulls Commercial Credit, which was supposed to pay Small Industries Development Bank of India (SIDBI), moved the Delhi High court seeking the benefit of such a stay. SIDBI is asking for a clarification from the Reserve Bank about the applicability of such an extension.

However, sources interacting with the RBI on the issue say the central bank has left it completely to the lenders to sort it out.

“The RBI's point of view is that it is an enabler, and not a commercial decision maker. Even in the case of retail loans, it is not mandatory for banks to extend a moratorium. It was left to the banks to decide,” said a person familiar with the RBI.

The primary business of the NBFCs is to borrow money to lend further, whereas, the RBI’s special focus remains on banks’ liquidity as they deal with public deposits, said the person.

The RBI, however, is monitoring top 100 NBFCs to see their liquidity profile and hasn't found anything alarming just as yet. One of the objectives of the exercise is also to apprise the government and help in coming with an economic package.

“The RBI itself won't and can’t take a decision. The economic packages will have to come from the government, which can then be implemented by the RBI. It is a regulator, and not a commercial decision maker,” said another person familiar with the RBI.

However, the person said Section 18 of the RBI Act allows the central bank to assist even an individual in special occasions. 

“That's like a nuclear button that can be used. But whether to use that button or not, again, has to come from the government.”

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