The move by some finance companies to allow “standstill period” or moratorium on borrowings through the share pledging route by promoters of some troubled corporate houses has come under the scrutiny of the Reserve Bank of India (RBI).
The central bank which has sought details about such arrangements is likely to come out with measures on “loan restructuring” or “evergreening” of loans by NBFCs, a source said. A corporate house had recently announced a “standstill period” with NBFCs and mutual funds after the shares pledged by the group crashed and the NBFCs who lent money sold the promoters pledged shares in the market.
Last month, an entertainment group also worked out a standstill period and moratorium with NBFCs and MFs for repayment of loans taken through share pledging. “This moratorium or standstill period on repayment is an indirect form of loan recast. The RBI had already scrapped all forms of loan restructuring and banks and NBFCs are supposed to classify such assets,” said a banking source.
Outstanding promoter pledged shares were Rs 196,000 crore, which is about 1.47 per cent of the total BSE-500 Index’s market capitalisation in December 2018, according to Kotak Securities.
Even when banks slowed down their lending business in the wake of huge bad loans, NBFCs continued to grow in a higher pace. As of March 2018, there were 11,402 NBFCs registered with the Reserve Bank, of which 156 were deposit accepting NBFCs (NBFCs-D). There were 249 systemically important non-deposit accepting NBFCs (NBFCsND-SI). All NBFC-D and NBFCs-ND-SI are subjected to prudential regulations such as capital adequacy requirements and provisioning norms along with reporting requirements. The aggregate balance sheet size of the NBFC sector as of March 2018 was Rs 22.1 lakh crore.
When the IL&FS issue rocked the financial sector in August this year, the NBFC sector was also hit with the system facing a liquidity shortage of over Rs one lakh crore. The government told the RBI to open a special liquidity window to provide credit to the NBFC sector. However, the RBI declined which in turn led to the government looking at an hitherto unused provision — Section 7 of the RBI Act to start the formal process of a discussion with the Governor on this. Banks, mainly State Bank of India then came forward to buy NBFC assets to enable them tide over liquidity issues.
NBFCs were the largest net borrowers of funds from the financial system with gross payables of around Rs 745,800 crore and gross receivables of around Rs 56,000 crore as at September-end 2018, according to the RBI data.