NBFCs seek RBI nod for one-time restructuring of all loans

RBI Governor Shaktikanta Das (PTI)

Non-banking finance companies (NBFCs) have asked the Reserve Bank of India (RBI) to permit one-time restructuring of all loans considering the economic scenario in the wake of COVID-19 lockdown, according to two people who attended a meeting between RBI top brass and NBFC industry representatives today.

Both declined to be named.

The RBI has allowed banks and NBFCs for a one-time restructuring of loans given to micro, small and medium enterprises (MSMEs). The scheme was recently extended till December 3, 2020, after the government requested the RBI to do so.

NBFCs have now asked RBI to extend a similar scheme for their borrowers for all types of loans taking into account the COVID-19 situation.

“Our key demand was permission for a one-time restructuring of loans of all borrowers. We also raised the moratorium issue with the RBI since some banks are still not extending a moratorium to NBFCs,” said one NBFC industry official.

If RBI permits this demand, this will be a big relief to NBFC borrowers since economic activities have slowed to a trickle on account of the prolonged lockdown.

Secondly, NBFCs have also asked the RBI to intervene to ensure banks give back-to-back-moratorium to NBFCs. The RBI announced moratorium for all term loans on 27 March. While NBFCs have extended this facility to their borrowers, not all banks have extended this facility to NBFCs. This created a liquidity mismatch for NBFCs.

RBI Governor Shaktikanta Das and deputy governors met NBFC industry representatives on May 4 to discuss liquidity issues and flow of credit to different sectors. In a similar meeting, the RBI had met banks a few days ago to discuss industry issues.

NBFC-MFIs told the RBI that smaller companies are unable to access the targeted long term repo operation (TLTRO) funds since banks are risk-averse, and hence, a separate window for small NBFCs and MFIs should be opened. This window can be routed through Nabard and Sidbi for smaller NBFC-MFIs, industry representatives demanded.

Also, in view of the Covoid-19 situation, RBI should allow all companies to avail the benefit of liquidity schemes regardless of their size and rating, NBFC-MFIs told RBI. As of now, the RBI liquidity windows can be used by banks to lend to those companies with minimum investment grading (BBB-). NBFC-MFIs want this condition to be relaxed temporarily.

Credit flow revival

The RBI asked the details of the progress of lending by NBFCs and NBFC-MFIs during the meeting and further lending to boost economic growth. NBFCs informed RBI that agriculture-sector related lending will likely pick up soon but for other sectors like auto and construction, it may take a while before credit revival to happen.

For urban-centric NBFCs, recovery in credit offtake will take more time since many of their clients were migrant workers and industries associated with a migrant workforce, NBFCs told RBI.

The RBI is of the view that all NBFCs including smaller NBFCs should get the benefit of liquidity facilities announced by the central bank in the past few weeks and these funds must be used for lending to the end borrowers so that economic activities can be revived without delay.

Meeting the representatives of the mutual fund industry, the RBI discussed the Impact of measures taken by the Reserve Bank with regard to the provision of liquidity, review of the functioning of the bond markets and plans for the way forward. In view of the Franklin Templeton fiasco, the RBI had opened Rs 50,000 crore window for banks to lend to mutual funds. Banks have not been very proactive to avail this facility on account of a high risk aversion.