FIDC seeks loan recast for its retail borrowers as second wave wreaks havoc

In letter to RBI, requests this be done irrespective of whether such accounts have been restructured on earlier occasions

With Covid-19 infections rising at an alarming rate in the second wave and many state administrations imposing lockdowns to curb the spread of the virus thus impacting economic activity, Finance Industry Development Council (FIDC) has written to the Reserve Bank of India (RBI) seeking recast facility for retail borrowers of shadow lenders, irrespective of whether such accounts have been restructured on earlier occasions. 

In a letter to the RBI governor Shaktikanta Das, FIDC said, “Considering the severe second wave of Covid-19, retail borrowers, including MSMEs, as also the retail and wholesale trader industry will be in urgent need of support from the lenders, to revive their economic activities. In this challenging environment for borrowers and lenders, in general, it will be helpful, if the RBI extends the August 6, 2020 notification on one-time restructuring till at least March 31, 2022.” 

The FIDC has said borrower accounts, irrespective of whether they have been restructured earlier, and if they are standard as of March 31, 2021, should be allowed recast without any downgrade in asset classification. Also, RBI may prescribe broad guidelines for restructuring such accounts along the lines of the Kamath Committee recommendations. 

They have also sought restructuring for small NBFCs, with an asset size of less than Rs 500 crore, who are dependent on the banks for their funding otherwise it may create an asset-liability mismatch problem for such NBFCs. 

“.....these small NBFCs may be given the benefit of getting their loans restructured (one time) from banks and FIs. This shall ensure that these small NBFCs remain eligible for further bank finance, there is no mismatch in their asset-liability position and thus help them support their wholesale and retail borrowers with fresh credit”, said FIDC. 

Furthermore, they have sought liquidity support for the shadow banking sector for on-lending to MSMEs. In this regard, they have asked the central bank to increase its outlay for All India Financial Institutions (AIFIs) from Rs 50,000 crore to Rs 75,000 crore.

“While the existing allocation for other sectors may continue at their prescribed limits, the additional Rs 25,000 crores may be made available exclusively to medium and small NBFCs, through SIDBI for period of 3 years”, the industry body said. 

Earlier this month, the RBI had announced fresh support to AIFIs of Rs 50,000 crore will be provided to the AIFIs for new lending in 2021-22.