Non-banking finance companies (NBFCs) are in a fix as different banks apply different rules to the relaxations announced by the Reserve Bank of India (RBI).
The State Bank of India (SBI) will not offer them any moratorium, but will instead offer funding under the targeted long-term repo operations (TLTRO), recently introduced by RBI. Under TLTRO, banks can invest in corporate bonds, commercial papers and non-convertible bonds sold by companies including NBFCs.
However, other banks are yet to decide whether to follow the SBI, or the rules framed by the industry body Indian Banks’ Association (IBA). According to the FAQs released by IBA after consulting all banks, RBI and the finance ministry, term-loan moratorium is available to all borrowers including NBFCs. Only the dispensation on working capital loans is not applicable to NBFCs. Meaning, working capital loans extended by NBFCs will not be eligible for the moratorium. RBI rules, on the other hand, allows banks the flexibility to offer dispensation to their borrowers. Meaning, RBI, however, lets banks decide on moratorium on working capital loans.
“SBI, in consultation with RBI, has taken a view that NBFCs or financial institutions are not eligible for term loan moratorium. They can avail funding under the TLTRO if there are any cash flow issues," said Arijit Basu, managing director at SBI.
NBFCs typically borrow from banks and on-lend it to a wide variety of sectors such as automobiles, retail and small enterprises. The non-banks, facing a liquidity shortage ever since Infrastructure Leasing and Financial Services Ltd defaulted on its payment obligations, fear renewed strain if banks do not extend the moratorium to them.
Sunil Mehta, chief executive, IBA, agreed there is some confusion about moratorium for NBFCs. “People have interpreted the rules in their own way. For NBFCs, term-loan moratorium is available across the board. But for working capital reassessment, it will not be available. It’s available to corporates as their working capital requirement is different from NBFCs," he said.
According to the chief of a public sector bank, RBI’s initial directions and FAQs by IBA are very clear. “Nowhere it says NBFCs are not eligible. Other banks are of the common understanding that the benefit is available for NBFCs unless RBI comes out with a clarification," he said.
“Tata, Reliance, Shapoorji are all looking at raising money under the TLTRO window. Only ₹50,000 crore out of ₹1 trillion has been released by RBI as of now. Already, I have a big list of companies waiting for disbursements. It’s doubtful whether all NBFCs can get funding under this scheme," said the banker added.
Lenders such as Small Industries Development Bank of India (Sidbi) have sought clarification from RBI. “Sidbi has referred the matter to RBI to get more clarity on whether existing outstanding loans are eligible for moratorium," a Sidbi official said.
“We are looking to seek clarity from RBI as there is a lot of confusion. Some lenders have rejected loans of small and mid sized NBFCs" said an official at an NBFC.
Experts in the NBFC sector said that NBFCs have been denied loans, resulting in panic among the companies. NBFCs argue that the small- and mid-size firms among them rely heavily on loans from banks. These companies cannot refuse a moratorium to their customers as many of them belong to the part of the society that will be worst affected due to the lockdown. Banks may provide fresh loans to only a few high-rated NBFCs.
