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RBI moratorium | NBFCs may face asset-liability management issues on term loans: Report

The Reserve Bank of India (RBI) had on March 27 granted a three-month moratorium on outstanding term loans.

April 01, 2020 / 10:59 AM IST
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For non-banking finance companies (NBFCs), the three-month moratorium on term loans will impact their cash flows and place pressure on asset-liability management (ALM), according to a Business Standard report.

The Reserve Bank of India (RBI), on March 27, granted a three-month moratorium on outstanding term loans. The move was a part of the central bank's measures to help depositors during the coronavirus outbreak.

Moneycontrol could not independently verify the story.

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Some experts told Business Standard that ALM could be impacted for up to six months if cash flows were hurt.

“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, told the paper.

Lenders such as Bajaj Finance and HDFC fund 45–47 percent of their liabilities through money market instruments, the report said, citing data from Emkay Global Research.

L&T Finance, Shriram Transport Finance, and Mahindra & Mahindra Financial Services typically use bonds and non-convertible debentures to service 48–53 percent of their funding needs, the report added.

Such instruments usually do not have forbearance, and are retired as and when they are due for repayment.

An executive at an asset management company (AMC) told Business Standard that fund houses were not subscribing to money market instruments of NBFCs due to a recent plunge 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,” the executive added.

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Tags: #RBI
first published: Apr 1, 2020 10:59 am