NBFCs Seek More Relief: Line Of Credit For Liquidity Support, One-time Restructuring Of Loans

Non-Bank Finance Companies(NBFCs) are seeking more relief from the Reserve Bank of India and SEBI including lines of credit, and a one-time restructuring of loans.

While the Reserve Bank of India 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(FIDC) have highlighted more issues that require clarity.

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

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, the NBFCs lending to priority sector should be given more support by removing the limit of Rs 20 lakhs imposed on such loans, it has said.

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

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

“…there may be a standstill on aging of past overdue for the moratorium period,” the FIDC said, pointing out that post March 19, collections had come to a grinding halt and most customers had been constrained to close operations as a result of the lockdown.

One-time Loan restructuring window

The industry body has also requested to allow a one-time window for restructuring of the loans as the lockdown could impact cash flows of atleast 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 to 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 the 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 to avoid any unnecessary rating downgrade and liquidity squeeze,” the FIDC said.