Allow restructuring of loans, ask raters not to downgrade: NBFCs to RBI

Mutual Funds say they didn't need to use their liquidity line fully

Non-banking financial companies (NBFC) and microfinance institutions (MFI) want the Reserve Bank of India (RBI) to extend the moratorium till at least June 30 — for both customers and para-banking institutions — and allow the restructuring of NBFC loans due to banks.
 

They also want rating agencies to refrain from effecting any downgrade caused by the economic stagnation due to the lockdown. RBI Governor Shaktikanta Das met representatives of NBFCs, MFIs, and mutual funds (MF) via video conferencing to discuss liquidity from banks and other financial institutions, and the moratorium to be offered to customers.
 

These were attended by deputy governors and other senior officers of the RBI, the central bank said in a statement.
 

According to people who attended the meeting, MFIs and NBFCs asked if the relaxation on asset classification norms could be extended up to September 30.

The NBFCs, represented by the Finance Industry Development Council (FIDC), raised the issue of moratorium on bank loans. While shadow lenders have extended the moratorium to customers according to the RBI directive of March 27, banks are not willing to extend any such facility to NBFC borrowers, said the FIDC.
 

“The governor wanted to understand our views and expectations. What we requested is for banks to provide a matching moratorium to NBFCs as we have provided to the consumers, else there will be stress on cashflows of the NBFCs,” said Ramesh Iyer, chairman of FIDC and vice-chairman and managing director of M&M Finance.
 

Iyer said that even though there was a moratorium of three months for consumers, they were seeking an extension as they had already lost three months and even if they started operations in June, it would take another couple of months for things to normalise.
 

“It could take 4-6 months for customer viability to return. We have requested for a one-time restructuring of loans like for MSMEs, instead of extending a moratorium, so that we can choose which customer needs what time frame and do a restructuring accordingly,” Iyer said.

NBFCs feel that since banks are not interested in a dedicated credit line such as the TLTRO 2.0, in which the banks picked up only half the Rs 25,000 crore on offer, the RBI should try a similar facility through other all-India financial institutions (AIFI) such as Sidbi, Nabard, etc. These agencies should also consider a 3-year loan for NBFCs so that there is no asset-liability mismatch.
 

Mid-sized NBFCs carry liquidity buffer of just 2-3 months, and so a liquidity line is important, they said. If an outright liquidity line was not possible, there should at least be a credit guarantee facility by the government (through Nabard, Sidbi, and Mudra) for lending, to ensure supply of credit to low-income customers and MFIs by banks and non-banks.
 

The NBFCs also requested a one-time restructuring of loans given to micro, small and medium enterprises (MSMEs), without the need for 5 per cent provisioning, citing capital concerns. People in the know said MFs updated the RBI on the impact of the liquidity window. They said that so far, the industry had drawn limited quantum from the window, with a large part remaining unutilised.
 

The RBI data shows Rs 13,290 crore has been availed through the standing liquidity facility for MFs (SLF-MF), so far. The Rs 50,000-crore liquidity window by the RBI is open from April 27-May 11.

MFs also pointed out that there was anticipation of certain bond issuers approaching the court to seek a stay on their obligations, even though recent court rulings had given relief to the industry. In its discussion with MFs, the RBI reviewed the functioning of bond markets.

The MF industry has seen redemptions in recent days. Industry data showed credit risk funds, and a clutch of duration scheme categories saw asset erosion of over Rs 22,069 crore in three days since Franklin Templeton Mutual Fund’s wind-up move. Even after the RBI’s move to allay concerns, certain debt categories saw a dent in asset size.

The microfinance institutions, however, sought dedicated credit facilities for NBFC MFIs below the asset size of Rs 500 crore, along with reasonably priced debt funding from DFIs (Development Finance Institutions), according to P Satish, executive director, Sa-Dhan.

MFIs in particular, wanted the moratorium to be extended until 30 June, as March payments were mostly honoured by the customers and the MFIs (to banks). The economic pain, in reality, accentuated April onwards as the nation went on lockdown and economic activities came to standstill.
 

The RBI, on its part, objected to coercive recovery tactics adopted by some  MFIs. Sa-dhan, an industry body for MFI, assured that its members would be urged to follow the MFI code of conduct.
 

The MFIs also suggested that lending by small finance banks (SFBs) to NBFC MFIs to qualify for the priority sector lending (PSL) as is permissible for the banks.

In the next three months, it is expected that Rs 18, 500 crores of debt will need to be repaid by MFIs. Also, the MFIs suggested that rating agencies to forestall any downgrades for the time being.
 

The MFIs also said that reasonably priced access to credit by NBFC MFIs was important to ensure that customers are given affordable credit. Risk-based pricing may not be the right approach at this time, they said. The MFIs also said that large NBFC MFIs can be the conduit to funding small and medium NBFC MFIs.