NBFCs Asks RBI for Restructuring Loans and Fresh Liquidity Support

The Finance Industry Development Council (FIDC), a representative body of the Non-Banking Finance Companies (NBFCs), sought fresh relief measures from the Reserve Bank of India (RBI) through a letter. The NBFCs asked to restructure loans and get liquidity support for on-lending to smaller firms in the letter.

The FIDC requested to increase the overall support in RBI’s outlay to All India Financial Institutions (AIFIs) from Rs.50,000 crore to at least Rs.75,000 crore. It also asked for an additional Rs.25,000 crore to be made available exclusively to the medium and small NBFCs through SIDBI for three years. The existing allocation for the other sectors can continue with their prescribed limits.

The FIDC asked the RBI for a one-time restructuring of the loans of small NBFCs from the banks and Financial Institutions. The loan restructuring will ensure that these small NBFCs stay eligible for further bank finance with no mismatch in their asset-liability position and thus, help them support their retail and wholesale borrowers with fresh credit.

The second wave of COVID-19 is already starting to impact the industries, especially the self-employed segment having little or no backing. Due to the second wave, the retail borrowers, including the Micro, Small and Medium Enterprises (MSME) and the wholesale and retail trader industry, will need immediate support from the lenders for reviving their economic activities. The MSMEs generate massive employment in the country and contribute more than 40% to exports and 35% to GDP.

The FIDC said that the RBI has been continuing to extend the time for on-lending benefit by six months at the time of review on an ad-hoc basis. The FIDC stated in its letter to the RBI that it would be helpful if the RBI extends its 6 August 2020 notification on one-time restructuring till at least 31 March 2022. 

The FIDC also requested to allow the borrower accounts to undergo restructuring without a downgrade in asset classification, irrespective of if they had been restructured on an earlier occasion if they were standard accounts as of 31 March 2021. The letter also provided that the RBI may prescribe broad parameters for credit assessment on the lines of the recommendations made by the K.V.Kamath Committee if required for standardisation of approach by all the lenders. 

The second wave of COVID-19 will peak in May and possibly start to come down in June. In this situation, the NBFCs will start reeling under the pressure of high NPAs while handling the demand of the moratorium and restructuring from the existing and deserving customers. Many borrowers are machine operators, taxi drivers/owners, marginal farmers, stockists, shopkeepers, workshop owners and local contractors in the NBFC segment. These borrowers are hit mainly by the state-wide and localised lockdowns mandated in parts of the country.

The second wave of COVID-19 has already begun to hurt the NBFCs’ collection. The lenders also require support for providing credit to the borrowers. Thus, the NBFCs have requested the RBI for facilitating loan restructuring and providing liquidity support for tiding over hurdles caused by the second wave of the pandemic.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in