Will NBFCs and Mortgage Companies Get Extension On Moratorium?

COVID-19 crisis had convinced the Government of India to defer the loan repayments for three months. Along with the moratorium for individual borrowers, the regulator had approved a 3-month moratorium on repayments for financial institutions as well. This is because the retail and corporate borrowers have been witnessing frozen economic activities during the lockdown.

We are approaching the last month of the moratorium period, and the situation has only been worse in terms of the number of active cases resulting in the extension of lockdown. Consequently, the bankers are considering an extension in the moratorium period to benefit non-banking lenders and housing finance companies.

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Bankers met with Shaktikanta Das, the governor of Reserve Bank of India (RBI) to get clarity on whether it is acceptable to extend the moratorium to non-banking finance companies (NBFCs). The governor clarified that the regulator has no objection if banks wish to allow NBFCs and mortgage lenders an extension until 31 May 2020 on the condition of anonymity. If the bank can make the additional provisions as per RBI, the moratorium will not affect NBFC’s asset classification, he added.

Further, the Indian Banks’ Association has decided not to extend the moratorium to NBFCs leaving them in dissatisfaction. However, NBFCs are to provide moratorium to their customers leading to an asset-liability mismatch. 

Banks believe that the NBFCs had already made their monthly collections by the time the moratorium was announced. That means NBFCs have enough cash to repay banks. Also, NBFCs and housing finance companies must maintain a healthy liquidity coverage ratio. Therefore, the moratorium extension to these parties is not something necessary.

This is concerning the RBI guidelines issued in November 2019 that states non-deposit taking NBFCs with the minimum asset size of Rs.10,000 crore and all deposit-taking NBFCs must maintain a 50% liquidity coverage ratio by December 2020.

Boards of banks have been planning to meet over the coming days to design a strategy to implement the moratorium for NBFCs and mortgage lenders. In the meeting, banks may address the unpaid dues during the moratorium period and how the asset classification benefits the NBFCs. Banks are also looking to build a one-time restructuring scheme for micro, small, and medium enterprises along with mid-corporate borrowers.

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