Banks Consider Extending Moratorium To NBFCs After RBI Provides Clarity

With less than a month remaining for the moratorium on loan repayments to end, bankers are considering extending the benefit to non-bank lenders and housing finance companies.

After bankers met with Reserve Bank of India Governor Shaktikanta Das last week, there has been some clarity on whether banks can extend the moratorium to non-bank finance companies, a senior executive at State Bank of India said. During the video conference, the RBI governor clarified that the regulator has no objection if banks were to allow NBFCs and mortgage lenders to defer repayments till May 31, the banker said on the condition of anonymity.

The regulator clarified that such a moratorium won't affect a non-bank lender's asset classification, if banks were to make the additional provisions as required by the RBI.

The RBI on March 27 allowed financial institutions to offer a three-month moratorium on repayments due between March 1 and May 31 on term loans to retail and corporate borrowers as all economic activity froze during the lockdown against Covid-19.

The Indian Banks' Association, however, decided not to extend the moratorium to NBFCs. That left non-bank lenders dissatisfied as they would have to offer the moratorium to their borrowers, causing an asset liability mismatch.

The banker quoted earlier said banks were of the view that most NBFCs had already made their monthly collections before the RBI announced the moratorium. Which, he said, meant they had enough cash to repay banks. Moreover, NBFCs and housing finance companies are required to maintain a healthy liquidity coverage ratio. The likelihood of NBFCs needing a moratorium would thus be low, the banker said.

In November, the RBI released guidelines stating that non-deposit taking NBFCs with an asset size of Rs 10,000 crore and above, as well deposit-taking NBFCs of all sizes must maintain a liquidity coverage ratio of 50 percent by December 2020. This would be gradually raised to 100 percent over four years.

The NBFC industry, however, has been asking the RBI and the IBA to extend the moratorium to them. According to RBI's monthly data, banks had extended loans worth Rs 8.07 lakh crore to non-bank lenders as on March 31.

Boards of individual banks will meet over the next few days to come up with a plan on how to implement the moratorium for NBFCs and mortgage lenders, the banker quoted earlier said. The banks will have to address any unpaid dues during the moratorium period and extension of asset classification benefits to the NBFCs, he said.

BloombergQuint reported on April 22 that banks were seeking a return to forbearance for larger borrowers since the national lockdown had resulted in severe economic stress.

Meanwhile, during their meeting with the RBI governor, bankers also sought a three-month extension on the moratorium beyond May 31 as the lockdown was extended till May 17 and borrowers would need time to get businesses back in shape. Banks also want the RBI to consider a one-time restructuring scheme for micro, small and medium enterprises as well as mid-corporate borrowers.