Non-banking Finance Companies (NBFCs) have moved Reserve Bank of India (RBI) seeking loan restructuring of loans for a second time and also seeking fresh liquidity support for on-lending to smaller firms.
Finance Industry Development Council (FIDC) – a Representative body cum Self-Regulatory Organisation for Non-Banking Finance Companies has written to the RBI seeking fresh relief measures.
These demands have been raised in view of the second wave of the Covid and the lockdowns announced by the state governments.
The key demands include allowing restructuring of customer loan accounts, even those restructured in covid wave one and now standard and standstill on buckets for restructured accounts for Q1FY22.
Also, FIDC has sought restructuring of loans to small NBFCs by banks and FIs (asset size of less than Rs 500 crore) and liquidity support to NBFCs for on-lending to MSMEs.
The association has also requested to increase the overall support outlay to AIFIs from Rs 50,000 crore to at least Rs 75,000 crore additional support exclusively to medium and small NBFCs, through SIDBI for a period of 3 years.
“We wish to bring to your kind notice that the second wave of COVID19 has already started impacting the industry, more so the above self-employed segment of customers having little or nothing to fall back upon,” FIDC said in its letter to the RBI governor.
With many states like Maharashtra, Chhattisgarh and Madhya Pradesh already under lockdown or lockdown-like strict conditions resulting in the closure of our branches and it is becoming increasingly difficult to reach customers for collections as their business has come to standstill and their livelihoods are under threat, the FIDC letter says.
“It is feared that this second wave of Covid will peak sometimes in May and then possibly start climbing down in June. It will not be long before the NBFC industry starts reeling under pressure of increased NPAs and at the same time, handling demand of moratorium and/or restructuring from its existing and deserving customers,” the letter says.
FIDC has demanded that the borrower accounts, irrespective of whether or not such accounts had been restructured on any earlier occasion and which are “standard” accounts as on March 31, 2021, may be allowed restructuring without any downgrade in asset classification, subject however to the lending NBFCs undertaking fresh credit assessment of the borrowing entity.
“ The RBI may like to prescribe broad parameters for such credit assessment (on the lines of recommendations made by K. V. Kamath Committee), if so required, for the purpose of standardization of approach by all the lenders,” the letter says.
Last year, the impact of the lockdown was not seen on banks’ earnings because of the emergency measures announced by the central bank and the government. The RBI announced a six-month moratorium and a subsequent one-time restructuring facility for banks.
This helped banks to escape from a huge spike in their non-performing assets (NPAs). A loan becomes an NPA if there is no repayment of interest or principal for 90 days. Once a loan becomes an NPA, banks need to set aside money to cover the potential losses from such accounts. High provisions hurt banks’ profitability.
Fresh liquidity support
FIDC also sought fresh liquidity support from the governor for on-lending to MSMEs. “We urge the RBI to increase the overall support outlay to AIFIs from Rs 50000 crores to at least Rs. 75000 crores. While the existing allocation for other sectors may continue at their prescribed limits, the additional Rs. 25,000 crores may be made available exclusively to medium and small NBFCs, through SIDBI for period of 3 years,” the letter says.
In the wake of Covid, the RBI announced liquidity measures worth around Rs13 lakh crore last year.
The RBI had announced the TLTRO on-tap Scheme on October 9, 2020, which was available up to March 31, 2021. In addition to the five sectors announced under the scheme on October 21, 2020, 26 stressed sectors identified by the Kamath Committee were also brought within the ambit of sectors eligible under on-tap TLTRO on December 4, 2020, and bank lending to NBFCs on February 5, 2021.
Liquidity availed by banks under the scheme is to be deployed in corporate bonds, commercial paper, and non-convertible debentures issued by entities in these sectors; it can also be used to extend bank loans and advances to these sectors. The RBI further extended the on-tap TLTRO Scheme by a period of six months, i.e., till September 30, 2021.