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How SBI and a section of banks interpreted RBI’s silence to deny moratorium for fund-starved NBFCs

In the backdrop of lack of clarity on the moratorium and banks' reluctance to invest in smaller companies, NBFCs may see their liquidity position weaken.

April 19, 2020 / 08:30 AM IST
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There was no consensus among banks on the extension of loan moratorium facility to non-banking finance companies (NBFCs) at a meeting of the Indian Banks Association (IBA) held in Mumbai on April 18, industry officials said.

Banks are sharply divided on this issue. The State Bank of India (SBI), which has been opposing moratorium extension to NBFCs, maintained its stance, along with a section of other banks. A few other lenders are inclined to extend the moratorium to NBFCs but they are waiting for a majority decision.

The whole issue is lack of clarity from the Reserve Bank of India (RBI) on the matter. With the central bank refusing to clarify on the moratorium issue with respect to NBFCs, banks are interpreting this in different ways, said a senior executive from the NBFC industry.

“So, some banks are inclined to give us the moratorium, while some others not. SBI, for instance, is not in favour. The whole point is RBI has not said anything clearly about this. Hence the lack of clarity,” the official said.

IBA will likely move to the Reserve Bank soon, seeking clarity on the matter. On March 27, the RBI had said that all term loans issued by all lenders should be given three month moratorium (March-May) so that borrowers who have suffered income loss during the COVID-19 lockdown will not suffer.


While NBFCs, as lenders, have already extended this facility to their retail borrowers, they are not getting the same from banks. This has created a liquidity short-term mismatch for these companies. NBFCs borrow from banks to raise resources at 9-12 percent. As of now, banks have about Rs 7 lakh crore-loan outstanding to the NBFC sector.

While announcing the moratorium facility, the RBI did not clearly specify anything about the NBFCs. This is what gave room for interpretations. Later, an IBA FAQ circulated among banks said that financial intermediaries need not be given moratorium facilities.

Banks such as SBI argued that these companies, instead, can tap the targeted long term repo operation (TLTRO) announced by the central bank.

But, NBFCs were not happy about this suggestion as banks deployed the money borrowed under TLTRO in big and top rated companies, rather than small firms. The RBI has already conducted Rs 1 lakh crore worth TLTRO and has announced another Rs 50,000 crore TLTRO 2.0. In the first round, much of the benefit went to big companies like NTPC, NHB and Reliance.

Among the NBFCs, NBFC-MFIs are particularly in trouble because of their customer profile and nature of the loan. MFI loans typically have tenure of 18-24 months and average loan size is about Rs 30,000. Every month of moratorium, these companies suffer 8-10 percent decline in their cash collections.

On April 17, in his second press conference, RBI Governor Shaktikanta Das once again remained silent on the NBFC moratorium issue even as he announced a few more liquidity measures for NBFCs. Under TLTRO 2.0 to the tune of Rs 50,000 crore, banks will have to deploy half of the funds in small NBFCs and MFIs. While this is a good move, the detailed guidelines on allocation of money yet again put small NBFCs/MFIs at a disadvantageous position.

According to the RBI circular, of the 50 percent earmarked for small companies, 10 percent should be invested in the securities/instruments issued by MFIs, the RBI said. A further 15 percent in securities/instruments issued by NBFCs with asset size of Rs 500 crore and below and 25 percent in securities issued by NBFCs with assets size between Rs 500 crore and Rs 5,000 crore, the RBI said. In other words, companies will receive a share of this money according to their size.

The problem here is that in earlier rounds some of the big NBFCs, those with assets above Rs 500 crore, had already managed to secure funds from banks. It was the smaller ones that were left out.

In this round too, the big companies are allocated 25 percent of the 50 percent TLTRO funds. As Moneycontrol explained in an earlier article, this effectively means, once again, small MFIs and NBFCs will struggle to get funds. Banks typically prefer bigger firms with better ratings while investing money.

The major demand of NBFCs from the banks and the RBI was extension of the moratorium facility, along with additional credit lines. In the backdrop of lack of clarity on the moratorium and banks' reluctance to invest in smaller companies, NBFCs may see their liquidity position weaken.
Dinesh Unnikrishnan
first published: Apr 19, 2020 08:30 am
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