NBFCs, MFIs Meeting with RBI, Efforts at Resolving Issues that have Hit the Sector

The Reserve Bank of India on Monday met with representatives of non-banking financial companies (NBFCs) and Micro Finance Institutions (MFIs) to discuss various issues concerning the sector.

The self-regulated umbrella body for the NBFCs, Finance Industry Development Council (FIDC), has released a note on the key highlights of the meeting with the RBI.

Here’s a summary of those, as stated by FIDC.

Moratorium On Loans: A very large proportion of our customers being small road transport operators, contractors, MSMEs and agriculturists faced significant economic disruption. We have offered moratorium to most of our customers pursuant to the RBI notification dated March 27, 2020, to help ameliorate their situation. However, NBFCs have not been able to avail of matching moratorium on their liabilities, giving rise to a risk especially to the smaller NBFCs. We request that NBFCs be given moratorium on their liabilities as well to ensure financial and liquidity stability to the sector.

Allowing A One-time Restructuring Window: Feedback from our customer segments suggests that the disruption of cash flow cycles would last for a large part of the current financial year and in fact would last longer amongst “Earn & Pay” segment viz. transport operators, contractors and MSMEs. While the three months moratorium has provided some relief to them, they may not be in a position to commence loan servicing from the fourth month as a result of the disruption. We request you to allow a one-time restructuring window till March 2021 for amending the loan repayment schedules and/or extending loan tenures or restructuring the EMIs, without affecting the asset classification, in line with the revised expectation of cash flows of our customers. This window exists today till December 2020 in respect of MSME loans (vide RBI Circular RBI/2019-20/160 DOR.No.BP.BC.34/21.04.048/2019-20 dt. 11th Feb. 2020). We submit that this window be extended to all other borrowers as well. We also request that as a special dispensation, the 5% provision requirement be done away with in view of the abnormal situation.

Funding Issues: NBFCs have been facing a negative perception since the IL&FS event and this has resulted in banks becoming extremely risk averse on the issue of extending loans to NBFCs, especially to the small and medium ones. The experience of TLTRO 2.0 so far clearly emphasises this risk aversion on the part of banks. We request the RBI to consider providing funds to a refinance mechanism through SIDBI, NABARD and/or their associate institutions which can provide long term loans to NBFCs for their on-lending operations. We further request you to kindly consider allocating the unsubscribed part of TLTRO 2.0 to these institutions as well.

Provisioning Requirement On Moratorium Loans: The RBI notification dated April 17, 2020 requires a provision of up to 10% (or as per the Board approved policy under Indian Accounting Standard) in respect of all loans which are at least 1 day past due and where a moratorium has been granted. Given the nature of our borrowers and their businesses, it is routine for them to pay the EMIs a few days later. This usually happens due to various local factors (e.g., a truck operator’s prolonged absence from home while driving the truck) and is not to be seen as a sign of credit risk. A very substantial number of such customers service the loans before they become 30 days past due. We request you to kindly consider this factor and permit provisioning to be made where moratorium has been given only on loans that are 30 or more days past due.

Source: CNBC TV18

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