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, both for their customers and for the para banking institutions, as well as allowing restructuring of NBFC loans due to banks. They also want the rating agencies to stay away from any rating downgrade caused by the economic stagnation brought forward by the nationwide lockdown. Reserve Bank of India (RBI) governor Shaktikanta Das met representatives of NBFCs, MFI, and mutual funds (MF) through video conferences to discuss the availability of liquidity from banks and other financial institutions, and moratorium to be offered to the customers. The meetings were attended by Deputy Governors and other senior officers of RBI, the central bank said in a statement. The RBI top officials had public and private sector banks in a similar manner on Saturday. According to people who attended the meeting, the MFIs and NBFC asked if relaxation on asset classification norms can be extended for another three months, up to 30 September, people present in the meeting said. The NBFCs, represented by the Finance Industry Development Council (FIDC), raised the issue of a moratorium on bank loans. While the shadow lenders have extended the moratorium to their customers as per the RBI directive of March 27, banks are not willing to extend any such facility to their NBFC borrowers, FIDC complained. "The governor wanted to understand what is happening on the ground and what our view is and what our expectations are. What we have requested is: since we have provided moratorium to the consumers, the banks should also provide a matching moratorium to the NBFCs or else there will be a stress on the cashflows of the NBFCs," said Ramesh Iyer, Chairman, FIDC and Vice Chairman & MD Mahindra and Mahindra Finance According to Iyer, even though there is a moratorium of three months for the consumers, they are seeking an extension of the moratorium because they have already lost three months and even if they start operations in June, it could take another couple of months for things to normalize. "It could take four to six months for customer viability to come back. So, we have requested instead of extending a moratorium, can a one-time restructuring of loans be allowed just like in the case of MSMEs so that we can pick and choose what kind of a customer needs what kind of time frame and a do restructuring," Iyer said. The NBFCs felt that since the banks are not interested in a dedicated credit line such as TLTRO 2.0, in which the banks picked up only about half of 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 three-year loan for NBFCs so that there are no asset-liability mismatches. The mid-sized NBFCs carry liquidity buffer of just about two-three months, and so a liquidity line is important, they briefed the governor. 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 the 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 the micro, small and medium enterprises (MSME) without the need for 5 per cent provisioning as mandated, citing capital concerns. According to sources, mutual funds updated RBI on the impact of the liquidity window.
MFs abreast the central bank that so far the industry has drawn limited quantum from the window and large part remain unutilised.
RBI data shows so far Rs 13,290 crore has been availed through standing liquidity facility for MFs (SLF-MF). The Rs 50,000 crore liquidity window of RBI is open between April 27 and May 11. Further, MFs also pointed out that there was anticipation that certain bond issuers could approach the court and seek to stay on their obligations, but recent court rulings have given relief to the industry. In its discussion with MFs, RBI also reviewed the functioning of bond markets and plans for the way forward. The MF industry has seen redemptions in recent days as well. The 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 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 crores, 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.