NBFCs Seek Liquidity Support,one-time Restructuring Of Loans

Non-banking finance companies are seeking more relief from the Reserve Bank of India and SEBI, including lines of credit and one-time restructuring of loans. While the RBI has already announced a slew of relief measures, including a three-month moratorium on all term loans in the wake of the national lockdown to prevent rapid spread of Covid19, NBFCs, through the Finance Industry Development Council, have highlighted more issues that require clarity.

“However, a feedback from the NBFC industry participants is that banks are highly risk averse to extend new term loans and working capital facilities, and cite exposure cap…,” said FIDC in a fresh representation that this has led to small- and medium-sized NBFCs getting deprived of liquidity support.

It has, accordingly, asked that banks should be advised to provide liquidity support through term loans and subscription to bonds and NCDs of investment-grade NBFCs starting from BBB-. Further, NBFCs lending to the priority sector, should be given more support by removing the limit of ₹20 lakh imposed on such loans, it has said.

“We submit that a special liquidity line could be created for NBFCs to be drawn against the assets held by NBFCs, and could be used to repay market borrowings in these tough times,” said the FIDC.

Significantly, it has also requested that the moratorium should also be applicable to all overdue loans that are standard accounts as on February 29, against the current provision of March 1 to May 31.

“…there may be a standstill on ageing of past overdue for the moratorium period,” said the FIDC, pointing out that post March 19, collections had come to a grinding halt and most customers were constrained to close operations as a result of the lockdown. The industry body has also requested to allow a one-time window for restructuring of loans as the lockdown could impact the cash flows of at least some companies and individuals beyond the three-month moratorium.

“This facility is currently available to MSMEs and could be considered for all other borrowers as well, given the environment. The restructuring of loans will enable lenders reassess the cash flows of the customers and, accordingly, revise its repayment,” the FIDC noted.

Noting that the current relief package by the RBI does not cover debt raised through capital market instruments such as NCDs, PTCs, and pools purchased under direct assignment invested by banks, it has sought a similar moratorium or a mechanism for an auto roll over or reissue of such instruments. “This will help the industry avoid any unnecessary rating downgrade and liquidity squeeze,” said the FIDC.