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Wednesday, October 21, 2020

NBFCs stare at liquidity woes as banks offer them no moratorium

Total bank loan outstandings to NBFC sector were `7,37,198 crore as of January 31.

Written by George Mathew | New Delhi | April 11, 2020 12:27:20 am
India INX, India INX incentives, GIFT City, GIFT City Gandhinagar, GIFT City Gujarat, Business news, Indian Express While NBFCs — hit hard by the IL&FS and DHFL crises — have taken up the moratorium issue with banks, the RBI and the Finance Ministry, they have not received any favourable decision so far.

Banks are sticking to their position of not offering any moratorium on term loans taken by non-banking financial companies (NBFCs), though the RBI has asked NBFCs to offer moratorium on loans taken by their customers, putting significant pressure on liquidity profiles of many such companies.

The total bank loan outstandings to the NBFC sector — which was already facing liquidity problem — were Rs 7,37,198 crore as of January 31, showing a rise of 32.2 per cent on a year-on-year basis.

While collections are falling steeply in the wake of the lockdown, closure of units and job losses, an estimated Rs 1.75 lakh crore debt obligation of NBFCs will mature by June.


Tiding over lockdown the priority for NBFCs

The Reserve Bank of India (RBI) had asked banks, co-operative banks and NBFCs to offer three-month moratorium on loan repayments by their customers in the wake of the COVID-19 pandemic and the nationwide lockdown. However, banks have refused to give the same facility to NBFCs which have taken huge loans from the banking sector.

“A significant part of money disbursed by NBFCs is loan taken from banks. It’s true that the RBI has not specifically said NBFCs should not be given moratorium by banks. But banks have not extended the facility to NBFCs. The RBI has also not clarified its position on the NBFC moratorium,” said a banking source.

While NBFCs — hit hard by the IL&FS and DHFL crises — have taken up the moratorium issue with banks, the RBI and the Finance Ministry, they have not received any favourable decision so far. Industry chamber Assocham had proposed a special liquidity window for NBFCs, but the banking regulator has not shown any inclination so far. While a few banks are inclined to offer moratorium on NBFC loans, some of the big banks have ruled out any such facility and the RBI and the government have not given any indication till today, said a source.

The central bank has made available Rs 1 lakh crore through its targeted long-term repo operations (TLTRO) window. However, only half of that is earmarked for primary issuances.

Moreover, an expected scramble for funds means corporates and government-owned financiers will also be interested in this window. Consequently, only higher rated NBFCs may end up benefiting.

According to a Crisil report, with collections minimal and the moratorium only for their borrowers, raising fresh funds is critical, especially because NBFCs, unlike banks, do not have access to systemic sources of liquidity and depend significantly on wholesale funding.

The rating agency said that liquidity pressure will increase for nearly a quarter of NBFCs if collections do not pick up by June. These NBFCs have Rs 1.75 lakh crore of debt obligations maturing by then, it added.

In a report, Acuité Ratings & Research said, “While we can presume that most banks will provide back to back moratorium, there is no indication that it will be applicable for the non-bank lenders or investors, unless there are specific bilateral arrangements.”

This implies that the bondholders, commercial paper investors and also fixed deposit holders (applicable for deposit taking NBFCs) in all likelihood, will insist on maintaining the existing repayment schedule, the agency said.

Almost 60 per cent of NBFC borrowings are from non-bank sources and require continuity in debt servicing. With minimal collections, NBFCs can only depend on their cash reserves and any backup credit lines from banks, if available for servicing such debt.

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